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New rules threaten low-cost fund charges

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06/08/2012
Charges on exchange traded funds (ETFs) and other low-cost products could rise following the introduction of new European rules, according to a report in the Financial Times.
New rules threaten low-cost fund charges

The European Securities Markets Authority (ESMA) has proposed that profits made by fund managers who lend out stocks should be returned to investors.

This could affect charges as, currently, fund managers can use the income they receive from loaning stock to keep annual management fees low.

The FT quoted Peter de Proft, director general of European Fund and Asset Management Association, as saying: “If you take away the revenue from stock lending then the cost of running the funds will go up and someone is going to have to pay that cost.”

However, Alan Miller, co-founder of SCM Private, said fee increases were “extremely unlikely”.

“Any company increasing its fees would lose share of the market, therefore any extra revenues from higher fees would be more than offset by lower fund sales,” he told the FT.

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