Investors charged millions for holding wrong type of fund could win compensation

Linda J. Dodson

Investors have been ripped off to the tune of hundreds of millions of pounds by fund managers who knowingly left their savings languishing in overpriced contracts for as long as seven years.

Campaigners are calling for compensation after fund groups admitted the true scale of the scandal, moving thousands of investors to cheaper “share classes” in one fell swoop, ­following a rule change.

Over time, investors in the same funds have ended up in different share classes. This has meant some paying nearly double the fees of others.

Investment firms had claimed regulations prevented them from moving investors into cheaper classes.

Telegraph Money can disclose that last year, investors in one fund alone – the popular £1.2bn Jupiter Income – paid £8.5m too much in fees because they bought directly from Jupiter. Investors who owned the fund via a stockbroker or financial adviser paid nearly half as much.

Hundreds of funds in Britain contain multiple share classes, many created in 2013 with the onset of regulations that outlawed commission paid to advisers.

If fund groups backdated the overcharged fees, investor claims would run into the hundreds of millions of pounds, campaigners say.

Investors who bought funds directly have been paying over the odds for at least seven years as old share classes remained untouched even though regulations, competition and the increasing use of fund shops brought charges down for everyone else.

Providers are only acting now as rules introduced in 2018 meant they could bulk transfer customers to new contracts. In addition, since last year fund providers have been forced to assess whether all investors receive value for money.

Last week, Jupiter said it had shifted 49,000 customers to cheaper contracts. In May, Columbia Threadneedle, another fund house, transferred 30,000 investors in a similar move. The transfers were revealed as part of the firms’ value reports.

Both moves were positive, experts said, but they also highlighted the length of time that managers had been happy to sit on their hands.

Robin Powell, a campaigner at the website Evidence-Based Investor, said: “Fund houses knew older share classes were more expensive and did nothing for years. They pretended it was too complicated to move investors. Now the regulator has stepped in and, hey presto, it’s done.”

Mr Powell said it was time the City watchdog, the Financial Conduct Authority, taught companies a lesson. “They should be forced to pay compensation to the affected customers,” he added. “Frankly, the only reason investors have been kept in these share classes is greed.”

Justin Modray, of advisers Candid Financial Advice, said the way fund providers pocketed extra fees was unjustifiable.

“Firms have been charging loyal direct customers too much until now. Fund managers put their own interests before those of their customers,” he added.

Kamran Vojdani of Leigh Day, a law firm, said there were no concrete legal grounds for compensation for investors but added that it would be the right thing for investment firms to do.

He said: “It’s very unpleasant when you look at the rules around how firms should treat all customers fairly.”

Administering direct investors is more expensive, so some additional cost is to be expected. The 2013 Retail Distribution Review meant most providers stopped selling funds directly and sold via brokers or financial advisers. However, they did continue providing Isas and pensions to existing customers.

Those stuck in old share classes continued to pay the old, higher fees and managers pocketed the money they would have paid out as commission in the past.

A Columbia Threadneedle spokesman said it started alleviating the cost for direct investors in 2019 by rebating fees  by providing additional holdings in funds.

A Jupiter spokesman said an unintended consequence of the RDR was direct investors being left out of cheaper share classes.

The firm added: “Jupiter is committed to doing our best by all of our clients, regardless of how much money they have invested with us.

“We welcomed the FCA’s decision on bulk transfers and initiated a project immediately to move customers to a more suitable fee structure. This was a large undertaking and we implemented it as soon as was practicable.”

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