The average retail investor in practice is asked to pay between £1.20 and £1.25 for every £1 of market return he/she receives from investing in an index-tracking fund. If investors opt instead for an actively managed unit trust or equivalent life fund, they stand to have to pay around £1.50 for every £1 of return achieved by the market. This does not sound like an attractive bargain, since it implies charges are effectively taking around a third of every pound that you invest.Why are the figures so high? One reason, as Mr James points out, is that most quoted statistics for the charges in buying managed funds are serious underestimates of the real costs you incur as an investor. This is not just because the annual management fees you see quoted in fund-selling documents take no account of other types of cost fund managers in practice are able to charge or pass on.More serious is the fact that the figures for costs quoted in selling documents take no account of various hidden costs, of which the most important by far is the impact of the transaction costs incurred by fund managers in buying and selling investments.Many actively managed funds have high turnover rates. Every time they buy and sell a share, they incur dealing costs, which are ultimately paid for by the fund investor. The chart shows the difference these costs add to the quoted cost of a typical unit trust and life office fund, on the FSA’s calculations.The chart also shows comparable figures for a typical tracker fund and for what Mr James calculates is, in practice, the minimum cost at which investors can expect to invest in the stock market. (Even in Utopia, you are never going to get £1 worth of market return for £1 because of dealing costs and the fact that markets won’t work efficiently unless at least some actively managed firms are keeping prices honest by buying and selling shares every day.)The charts express graphically the point that has been made here many times before – that investors ignore the costs of their funds at their peril.

Equally, it is no wonder that fund managers are so incensed by it all. As always happens with a ground-breaking exercise of this sort, the reaction of the industry has been to attack its methodology (ie, shoot the messenger), rather than focus on the issues it raises.This has already had impact. The FSA last week was at pains to make clear this paper was a consultation paper only , describing it merely as “some preparatory research” and a “preliminary work”. For its part Autif, the unit trust trade association, called the report “deeply flawed and misleading for consumers”.I agree the methodology adopted in the paper is open to criticism on a number of counts, and the figures may be too high.

If so, the margin of error will not be large and it would be a shame if the fuss deflects attention from the more serious underlying issues the report raises.It says retail investors in both the UK and the US have little understanding of how charges affect the performance of their funds, let alone grasp the actual cost (in pounds and pence) of that performance impact.All published figures on costs, including the Reduction in Yield figures which are required to be included in the “Key Features” documents you are sent when you buy a fund, understate the real cost of active management, because of the hidden transaction costs.Life office funds on average appear to be more expensive those of equivalent unit trusts, but it is impossible to be 100 per cent certain about of this because of the lack of comprehensive comparative data.Most investors choose (or are advised by IFAs to choose) funds with strong recent performance, though this has absolutely no predictive ability. Most of the money that flows into unit trusts and other managed funds goes to a handful of funds with the strongest recent track records.Because most funds are chosen on the grounds of past performance, rather than cost, or any other basis, it is relatively easy to demonstrate that fund management groups have little or no incentive to reduce the high level of their charges. This last point, is the key to the whole issue of fund management charges. It is easy to criticise the level of charges in this country as too high. But the bottom line that any critic has to face is this: why should the fund managers change their ways?If the punters insist on opting for funds with strong recent track records, and the IFAs continue to recommend them, most fund managers with an ounce of commercial savvy are going to keep things the way they are for as long as they can.It will take a lot more than a string of equations to crack this particular nut, which is why the FSA would be wrong to allow itself to get bogged down in complex and arcane arguments about methodology.So what if the real figure for the cost of investing in a unit trust is (say) £1.46 rather than £1.50 per £1 of market return? Its cause is just, and it must have the courage to stick to its guns.davisbiz aol .

Andrew Walwyn, Managing Director, DX Communications

Andrew Walwyn, Managing Director, DX Communications
Market awareness of the mobile telephone has exploded and the specialised mobile phone retailer is seeing growth like never before. Admittedly, some customers buy their first pay-as-you-go phone in the supermarket, but for advice, add-ons and particular services they will turn to the specialist.There is a large number of retailers and I can’t help but feel the market has only room for four players. This year I think we may well see rationalisation in the sector.Without a shadow of a doubt, customer service is the factor which differentiates between operators. The staff has to know the products well and can demystify the complicated tariffs and deals for the customer.Charles Dunstone is still one of the leaders with Carphone Warehouse. I take my hat off to him for still setting the pace for innovation. Charles puts himself in the consumer’s position, at the same time always looking for what’s going to be next.Barry Neild, Marketing Director, The Phone PeopleWhen I came into the industry, mobile telephones were retailing at £1,500 and were the size of breeze-blocks.

Now handset prices are being constantly driven down and call rates are consistently falling.There is intense competition between the network providers and every time they lower their tariffs, more people come into the market And this will continue. Retail dealers’ profits will be affected dramatically – we’ll make less on subscriptions and handsets and because call rates are coming down, there will less revenue there.We have to make more revenue by offering our internet provision and data services to the mobile user. It is also important to differentiate ourselves from other retailers with the actual staff-to-customer service we offer.Carphone Warehouse is in a powerful position because they are the largest company in mobile retail. They have a lot of buying power and are well established.Ian Gray, Managing Director, Vodafone RetailProduct changes are rapid and to stay ahead of the game in mobile retail we need to anticipate the customer’s needs and provide service from well-trained staff.The sector is growing exponentially and there is more room for good retailers. As the industry matures, those who don’t do the job properly will drop out.E-tailing is becoming a magic word in the business and it is important to have a web presence. This should be backed by eye-to-eye customer service in the shops – clicks and mortar. It’s important to read the market properly, anticipate customers’ needs and prepare ourselves to grasp the opportunities of new technology.Looking at other players in the industry, I do think Charles Dunstone with Carphone Warehouse has run a good business for a long time now.