‘The equity fund concerned has performed very closely to its benchmark, but is marketed and priced as an actively managed fund. Finanstilsynet considers this to be censurable and counter to good business practice.’
‘Finanstilsynet has decided to impose a corrective order on DNB Asset Management AS. This order broadly requires the company to either bring the management of the fund into line with the characteristics of active management, as reflected in the fund's prospectus and the management fee, or to adjust the pricing of the fund to the management strategy’
Meanwhile, the UK regulator’s Chief executive, Mr Martin Wheatley has known about this insidious practise since September 2012[1] but surprisingly the FCA has chosen to ignore it.
This Norwegian precedent may well lead to the opening of the floodgates for UK compensation claims for mis-selling and mis-management, with the biggest UK culprits likely to be UK banks and insurance companies. For example, two Lloyds Bank funds which SCM has highlighted as potential closet index funds – the Halifax UK Growth and Scottish Widows UK Growth, have charged investors £119m more than their index fund equivalent over the last 5 years[2]. If you were to include Local Authority pension funds, and other institutional investors, this overcharging scandal would be in the billions.
Closet Indexing has been highlighted in two separate SCM Direct reports[3] as being rife in the UK, the latest being a February 2015 report. SCM Direct estimates that 36% of UK funds are closet trackers and have could have cost investors as much as £3.8 Bn. over the last six years.
Gina Miller, founder of SCM Direct and the True and Fair Campaign says,
“The Norwegian regulator is to be applauded for their decisive action. It is high time the FCA follows their example and forces the 36% of UK funds that are closet trackers to behave honestly by either changing their fees, their marketing and fund literature, or the manner in which they manage their funds.
In addition the FCA should force the offenders to compensate investors for the excess fees charged, and mandate that UK providers follow US style rules that require all funds to reveal 100% of their holdings on-line; at least quarterly. Investors have the basic right of not only knowing exactly how much they are paying, but what it is they are paying for. ”
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