A hard-fought campaign on cost disclosure rules for investment companies started to make headway at the end of last year and momentum has continued into 2024, with 300 market participants signing a response to an HM Treasury policy note in 48 hours calling for an urgent fix.

Under the current packaged retail and insurance-based investment products regulations, the costs of running a closed-end company are bundled together, making it appear that listed funds charge extra fees. But these fees are already factored into the market share price and fully disclosed.

Participants of the Disclose: Don’t Double Count campaign have repeatedly highlighted that investors, both retail and professional, have sold out of investment companies as it appears costs are high compared with their open-ended funds, widening discounts during an already challenging market environment and risking the ongoing health of the sector.

Following the Autumn Statement in November, HM Treasury issued a draft policy on retail disclosures and stated its intention to address concerns. 

As part of the process, it opened a short window for technical comments on 5 January with responses due by 10 January.

Some industry members said they were only made aware of the response opportunity early this week and this resulted in a busy 48 hours, during which they sought to create an organised and coherent response.

Following discussions, the key recommendation from the industry was that investment companies be added to the ‘excluded products’ category within the statutory instrument, or legislation.

Investec analysts Alan Brierley and Ben Newell said this was a ‘simple and effective solution’ that would mean investment companies would not be ‘required to comply with the current cost regime’.

This recommendation was made through a joint response written by the London Stock Exchange, and signed by more than 300 signatories, including 119 investment companies, 33 investors, 25 brokers and 13 research firms, along with numerous MPs and other interested parties.

The Investec analysts said the joint response sends a ‘powerful message’ to the government and was ‘an incredible result given that signatures were only sought from interested parties over the space of a little over 48 hours’.

‘We are also aware of significant support from industry participants for whom the tight timescale was too high a hurdle to obtain compliance approval,’ they added in a note.

Next steps

There are several prongs to the campaign on cost disclosure and one of the next stages will be a consultation from the Financial Conduct Authority (FCA), which the analysts expect to be launched soon.

When the government said it was reviewing the issue, it also announced the FCA was considering an ‘interim solution’ as the legislation progressed through the necessary channels.

There is also a bill from Ros Altmann, the consumer champion and a former pensions minister, advancing through parliament on the issue.

The bill, which had its first reading at the end of November, calls for investment companies to be removed from the Alternative Investment Fund Managers Directive (AIFMD). The sectors’ inclusion in AIFMD created a domino effect and led to the disclosure of aggregated fees in subsequent regulation.

During the second reading, which has yet to be scheduled, the bill will be debated and open to amendments before the members of the House of Lords vote on it. After that, it will pass to the House of Commons if it has the support of an MP.