L&G sounds out investors about paying higher charges

L&G sounds out investors about paying higher charges

Legal & General is sounding out unit trust investors about a potential rise in its annual management charges.

The company's UK Index tracker fund is the third biggest fund in the country with £3bn under management, and has among the lowest charges.

But Jobs & Money has discovered that the company is holding focus group meetings among investors to test reactions to charge increases.

A 0.5% increase in yearly charges on the UK Index tracker fund would net L&G £15m a year. Currently, the UK Index fund, which tracks the All Share Index, has no upfront charges and just 0.5% each year, one of the cheapest unit trusts on the market - most levy 5% upfront and 1.5% a year.

Low-cost trackers buy all the shares in an index relative to their size in the market. Low costs give a big advantage over active funds which bear the costs of high earning fund managers and expensive research.

Those attending the focus groups - paid £40 in cash for turning up - were asked if they knew what tracker charges were. Many thought they were higher than they were - often as much as double.

The focus groups then discussed what level they would be prepared to pay. They were offered choices ranging from 0.25% to 1.5% more.

Finally, L&G wanted to know how investors wanted it to communicate increases: did they want detail or were they content just to know?

One group asked whether all this was a precursor to an.....continued below

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increase. The leader said L&G would not spend all this money if that was not its plan.

But when we approached L&G, it said it has no intention of putting up charges. "Those questions were hypothetical, although it is easy to understand why our focus customers might come to this conclusion. You can never say never but we are not increasing fees on tracker funds this year, next year or as far as we can see," says L&G retail investments director Simon Pistell.

So why ask these questions? "It helps to know what people want and how they think so we can develop new products. We are trying to understand what customers thought we did for their money," he says.

"It is important to look at charges and what customers think is acceptable now that the government ceiling on the stakeholder suite of products is soon to be increased from 1% to 1.5%."

L&G believes it would have to "give something" such as better service to justify raising charges.

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