The new Markets in Financial Instruments Directive (MiFID II) brought in new disclosure requirements for fund management groups, forcing them to show the additional transaction costs that are charged to their funds, on top of the established ongoing charging fund (OCF) figure.

Lang Cat research found that across the top 20 selling funds of 2016, 13 funds are paying an average of 30% more in additional transaction fees than had previously been disclosed. This includes funds from big-name fund management groups such as JP Morgan, Vanguard, Henderson and Investec. For some funds, the additional cost was 85% higher.

Seven of the top 20 funds disclose their transaction costs as zero; it is unclear yet whether these funds genuinely have no transaction costs or whether they are being met from company profits rather than borne by the fund.

Mike Barrett, consulting director at The Lang Cat, said: “No-one’s charges have actually gone up. Investors have always been paying these fees, it’s just that the fund groups now have to tell you what they are charging.

“Most advisers have always known there was more to fund costs than the OCF; however in the absence of formal disclosure this was just speculation, and they had to work with what the fund groups told them. It’s worth remembering that as recently as 2016, the Investment Association was calling these additional charges ‘the Loch Ness Monster of investments’. It turns out that Nessie is alive and well, and charging tourists a third more for a photo than they expected.”

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Barrett said that the additional charges feel ‘grubby’ and are likely to be a turn-off for investors, particularly when they realise how hard the industry has kicked against being made to step-up to the plate and disclose these charges.

He added: “It’s taken EU regulation to get this out in the open, rather than transparency being the default position. Now we’ve come this far, we also need those firms who are disclosing a zero cost to explain the basis of their assumptions.”