A recent study done by Morningstar in the US has found that low cost funds outperform high cost funds. You can read more about these findings here. Is this counterintuitive? Are your clients getting what they pay for?
Many believe high expense ratio should result in better performance over the long term as it implies a higher level of skill. Unfortunately this does not always hold true.
This issue of fees was also discussed in a recent episode of the BBC investigative program Panorama. The program focused on pension fees and their affects on the overall “pension pot” once a person hits retirement. It was pretty one-sided journalism to say the least but Morningstar’s research on the affects of fees was cited.
This idea of cheap funds outperforming expensive, flashy products has certainly generated lots of discussion on IFALife.com – an IFA website I visit regularly. The link to the thread can be found here. Perception is obviously still mixed yet the notion that you have to pay more to get better returns is unfounded, as our research has proven.