Hopes of an early end to the confusion over investment company charges following the sector’s exemption from flawed disclosure rules have foundered after objections from online stockbrokers.

Retail investment platforms including Hargreaves Lansdown and AJ Bell are reluctant to update their websites before the introduction of new rules next June.

They also oppose the suggestion that investment companies can publish their ongoing charges as zero, arguing it will mislead investors.

This follows the publication this week of regulations confirming last month’s government announcement that investment companies would be added to the list of investments excluded from the EU’s Priips and Mifid rules.

KIDs dropped

The Treasury’s forbearance statement delighted those who have called for reform by going further and stating that investment companies were no longer required to provide key information documents (KIDs) with data that effectively double counts their operating expenses.    

In response, the Association of Investment Companies (AIC) is encouraging its members to show their ongoing charges as zero and provide investors with an explanation that recurring costs are included in the share price.

This advice applies to KIDs and the European Mifid Templates (EMTs) that investment platforms and wealth and fund managers use when investing in investment companies on behalf of clients.

However, the AIC has admitted that retail brokers have pushed back against the proposal, claiming it is ‘materially misleading’.

One platform threatened to restrict investors from trading shares in trusts that did so.

The AIC’s chief executive Richard Stone told Citywire he was working with platforms to find a solution. ‘Consumer duty obligations as a regulation are more judgemental, so while platforms are not going to reprogram until there’s a permanent solution in June 2025, we’re looking at alternative measures like keeping the KID with a disclaimer,’ he said.

A spokesperson for Hargreaves Lansdown said: ‘We continue to require the European Mifid Template to be completed as a minimum standard. This should be completed with cost and charges information.’

AJ Bell said: ‘We are aware of the FCA forbearance statement and have been monitoring updates closely, as well as engaging with industry trade bodies and product manufacturers to reach an appropriate solution that is in the best interests of customers. The scope of any plans to reduce disclosed costs is yet to be determined, but we are already engaging with manufacturers to identify how this might work.’

Fidelity, a platform provider and investment trust manager, said it supported the government’s reforms and the interim action being taken to exclude indirect costs from disclosures.

‘We are also discussing the matter with the Association of Investment Companies to ensure relevant information that must be passed to distributors and made available to retail customers continues to be provided,’ it said.

‘Sticky spot’

Ben Conway, chief investment officer at fund manager Hawksmoor and one of the members of the Disclose: Don’t Double Count campaign, said: ‘We’re in a sticky spot right now and we’re trying to engage with platforms as best we can to tell them what the right thing to do is and help them with their consumer duty obligations.

‘Zero in the EMT and KID means no ongoing charges, they just have expenses – call them what they are. It’s pernicious to call them ongoing charges because you’re telling investors it’s coming off the value of the investment, which is just not true.’

However, the potential for confusion is clear. Both Conway and Stone pointed to Murray International’s (MYI ) updated KID as a good example of what could be done. The Abrdn-managed investment trust lists all its costs as zero with no impact on investment returns. By contrast, its factsheet states its annual ongoing charges at 0.53% of assets. 

The AIC added in a note to its members that where ‘zero’ was not the preferred solution, trusts could include either the ongoing charge from their KIDs, or their annual management fee, in the ongoing costs field in the EMT, saying both would be lower than the ‘reduction in yield’ previously disclosed.

Conway and his fellow campaigners are pushing for legislation requiring a statement of operating expenses to replace the misleading ongoing charges ratio, which they hope will satisfy retail platforms.

‘We don’t want a weird world where platforms insist on a positive ongoing charges figure while multi-asset fund managers say there are zero changes,’ he said.

The uncertainty over cost disclosure means an early return of wealth managers who dropped investment companies over their apparent high charges is unlikely. Broker Peel Hunt said there were 39 listed closed-end funds above £200m with ongoing charges over 1.5%. Most of their shares trade on wide discounts, raising hopes of a rerating if the vexed issue of costs is resolved and once the Budget – and its likely rise in capital gains tax – is out of the way.