2017 and earlier

The New Year will bring greater transparency in investment management fees

20 Nov 2017

Kate Rogers

Kate Rogers

Co-head of Charities

Kate Rogers, Portfolio Director and Head of Policy at Cazenove Charities shares her thoughts on issues faced by the charity sector in Third Sector Magazine every other month. 

There’s a new piece of regulation in the investment world. With the natty title of MiFID II (Markets in Financial Instruments Directive), the new requirements are set to take effect from the beginning of next year and is likely to mean that any charities with investment assets will be getting a letter from your investment manager, if you haven’t already had the pleasure.

This regulation will herald the beginning of a new transparency in the reporting of costs to investors, as the opacity of the investment management industry is challenged. Managers will be required to provide a full statement of the costs of investing; personalised to each client along with the impact of these costs and charges on the financial returns. Where the investment manager has invested in another fund, those underlying costs will also need to be shown.

As costs become more transparent, trustees will no doubt seek to compare the fees of one manager with another; enhancing competition. In this environment it will be even more imperative that managers can demonstrate the value that they add for the fees that their charity clients are paying. And this is a topic that I have been spending a bit of time thinking and talking about over recent months.

Our latest publication, Value for Money, summarises our main findings and proposes a framework for trustees to think about investment management fees. Costs should not be considered in isolation. They are part of an interdependent triangle which also includes risk and return. To make it even more difficult, fees are the only certainty in this equation, whereas risk and return are forecasts based on what has happened in the past. So how can trustees evaluate whether they are getting value from their investment managers?

Firstly it is important to establish what you are hoping to achieve with your investments, and make sure that you are appraising the outcomes relative to your own objectives. This makes the choice personal and relevant to your own charity’s position and ambition and means that the choice of benchmark is crucial. However, financial performance is just one part of the jigsaw; you are probably paying for more – perhaps custody of the assets, reporting and service – often  bundled within one charge. Critically, the services offered by managers vary. Some managers aren’t regulated to give advice – which means you inadvertently may not be fulfilling the Charity Commission requirement to ‘take advice from someone experienced in investment matters unless they have good reason for not doing so’. And the approach to transaction costs varies. So clarity on what you are paying for is a good starting point.

Value for money is much easier to appraise once you have this clarity on costs, and can compare the results directly with your aims. Often trustees want to use other comparators, to see whether they would have been better off investing elsewhere. Many look at market index returns, but implicit within this is the assumption of zero costs. Investing passively in index funds has its merits, but it is certainly not without cost. A fairer comparison might be a passive portfolio after fees have been charged.

Considering value for money will mean that trustees will be better equipped to understand what they are paying and what benefit they are receiving from their investment managers. As such, the fee transparency that the new regulation and New Year will bring should be celebrated. 


Kate Rogers

Kate Rogers

Co-head of Charities

Kate specialises in investment on behalf of charities, endowments and foundations and has over 20 years of experience, with 15 years at Schroders and Cazenove.  She is a CFA charterholder and has a BSc (Hons) in Natural Sciences from the University of Durham, is Chair of her local community foundation, Vice-Chair of her local primary school and Chair of the Finance Committee of the Cripplegate Foundation.  She won a Women in Investment Award for her work with the Charity Commission and FCA creating a new charity investment vehicle.

She has researched and co-authored a series of publications on Charity investment best practise including 'For Good and Not For Keeps', which examines sustainable expenditure, ‘Intentional Investing’, which researches how charities can align their investment policy with their aims as an organisation, and more recently ‘Time and Money’, which explores how charities can make the best use of longevity.  Kate was chair of the Charity Investors' Group for 12 years, standing down in 2019.  In this role she collaborated with CFG and authored a guide to written investment policies.  Kate also regularly writes on charity investment in the charity sector press.


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