Why is the cost of investing falling?

Enable’s experienced IFA’s have seen the cost of investing fall dramatically over the past decade. For many sound financial planning involves talking through your options with experts as well as using technology to reduce costs and increase transparency.

Funds that used to be run by people are now largely automated and run by complex algorithms simply overseen by humans. The daily rebalancing of a typical “passive” fund that tracks the market is now almost entirely autonomous. “Active” managers, who select shares rather than follow the market however also use technology much more. For both active and passive managers, the actual process of investing has also become more efficient. And these benefits are saving investors significant amounts too.

Alongside efficiency there is more and more of a push for active fund managers to be more transparent about the fees they charge. Investors can now easily compare funds’ fees and performance online, and a recent FCA report concluded that active fund fees were too opaque and tended to “cluster” around price points. It suggested that managers should be using an “all-in” fee to make it even easier to compare costs. With more focus on fees and the under performance of many active funds there has been a move towards low-cost “passive” investment. As more money flows into passive funds, the economies of scale grow meaning that they continue to get cheaper.

Some portfolios might have higher costs if they invest in niche assets such as hedge funds who might charge a management fee, plus a performance fee. If you want to make sure you have the right cost associated with your investments Enable’s IFAs are happy to talk it through.

http://www.telegraph.co.uk/investing/funds/four-reasons-cost-investments-falling/

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