The investment management industry needs to do more work around clarity of charges among all investor segments, but particularly among Mass Market and Emerging High Net Worth (HNW) individuals, according to new research.

More than four in 10 (42%) Mass Market investors in Britain say charges are not clear, as do 44% of Emerging HNW’s.

Interestingly, advised investors have a somewhat better grasp of fund manager fees as a clear, though not astounding, difference can be observed among the perceived clarity of charges by advised and non-advised investors.

In the past few years, the retail investment industry in the UK has been through some transformative reviews. The fees end investors are charged has been one of the main focal points of the changes that have come about. Furthermore, the bulk of the revolution took place within the intermediary part of the value chain.

The road is now being paved for the fund manager side of the equation to make changes in the way they charge for their services or at least in the way they communicate these charges to their clients.

In May 2014, the Financial Conduct Authority conducted a thematic review of retail funds. In the resulting report entitled Clarity of Fund Charges the FCA reprimanded some of the firms under review for providing unclear and misleading information on fund charges which was not sufficiently comprehensive.

The Financial Services Consumer Panel also weighed in on the issue, publishing a discussion paper on investment costs in November 2014. In this paper the FSCP explains the importance of the matter as, “apparently small differences in the cost of investing can make a material difference to the value of individuals’ long-term savings: over a working lifetime, a 1% annual charge could slice the value of a pension pot by a quarter.”

This statement was based on illustrative calculations by the Department for Work and Pensions in November 2013 which show that an individual could lose around 13% of their pension pot at retirement as a result of charges after having saved into a scheme with a 0.5% annual charge throughout their working life. “A 1% annual charge could reduce that pot by 24%,” says the FSCP.

The exercises undertaken by both the FCA and the FSCP concentrated on what is currently being done by the investment management industry – what fees they charge their retail clients, how they are communicated and how these compare to other client types, such as institutions.

Research by CoreData reveals retail investors agree with the reviews carried out by the FCA and the FSCP that the investment fees fund managers’ charge are not clear enough.

Over three quarters of individual investors’ support these claims as they say the charges are either not clear (38%) or only somewhat clear (40%), while just over a fifth say the charges are clear to any degree (18% say clear and 4% say very clear).

Meanwhile, the CoreData Research report, titled Fund Manager Fees, revealed a greater number of investors without a dedicated adviser feel the fees aspect of investment management is not clear (45% vs. 31%). Furthermore a greater number of advised clients say the charges are clear or very clear (26% vs. 14%).

A considerable portion of advised clients (43%) still feel the charges are only somewhat clear. This could indicate advisers need more assistance from investment managers to help clarify the fees aspect of their service.

Ongoing Charges Figure (OCF) is the least familiar charges term with almost 80% saying it is unfamiliar. The most familiar term is the Annual Management Charge (AMC) with 40% finding it familiar. The Total Expense Ratio (TER) falls in between as 33% of investors say it is familiar.