Investment fund charges are due to be discussed openly following the controversy of expensive fees which the new city regulator promised to keep an eye on after taking over the duties of the FSA.

The new regulating body alongside the Prudential Regulation Authority (the PRA), is already rolling to replace the Financial Services Authority next week will be planning to spearhead its first business plan to check divisive fees which it believes to have caused a lack of transparency for many investors. Investor groups have made complains that millions of small time investors are clearly wasting their money paying fund managers more than what they are simply capable of.

The most notorious of fund managers seek to explain that they charge more because of the research they do on stocks to deliver better returns for their clients which common sense reveal that it can be achieved by simply done by following the hints and guidelines of the market. However, despite the alleged difficult task they pose to unsuspecting investors, only a handful were able to fully manage to actually beat the market over the longer term. The reality is that the odds fall to just one manager in six successful returns.

The FCA rebuts that the current fee structures, which are higher in the UK compared to the same rival markets make it extremely difficult for small time investors to actually make comparison with other similar products. There is an elaborate setup that fee structures abuse consumer behavioural prejudice which is the main aspect of the carried risk.

A recent independent research reveals that in every five adviser one actively retorts that the said charges on actively-managed funds are discouraging investors as compared to simply relying on tracker funds or index.

It firmly believes that the main reason for the said charges show a growing understanding on the effects of high fees on a long term performance, for instance a 30-year investment with a gross annual income of 3 per cent reveals a 143 per cent return but ironically falls to 56 per cent should a 1.5 per cent annual charge is imposed.

Moreover, there has been an important move in the institutional sector from an active to a more passive form of investment and this study shows that investors are very much concerned about the expenses they incur while a lot of intermediaries are stressed out just to keep up with their intended performance.

The FCA under scrutiny will eventually lead to new policies which have already passed under the new RDR regulation which ultimately means financial advisers are compelled to be more truthful and transparent about the way they bill their clients for their services.

Last Updated: April 12th, 2013