Vanguard calls on funds to issue ‘cost warning’

City funds sold to retail investors should carry a “health warning” on fees, says giant US fund manager Vanguard.

The index-tracking expert, which has $4 trillion (£3.2 trillion) of assets under management, has told the Financial Conduct Authority that warnings about cost should receive equal prominence to those on past performance.

The watchdog is in the middle of a shake-up of the fund sector, which has been fending off bids to make its fees more transparent.

Critics say the industry is uncompetitive and needs an overhaul. Vanguard says high-cost funds nearly always return less than the cheaper funds, such as trackers.

It suggests a health warning that reads: “Warning. Check how much you are paying. High fees will harm your long-term returns.”

Sean Hagerty, head of Vanguard’s European business, said: “Investors cannot control the markets, but they can control what they pay to invest, and that makes an enormous difference over time to their returns.

“Performance is a potential. Costs are a certainty, hence why investors should focus as much, if not more, on costs. A ‘health warning’ on the impact of costs would be a clear sign of intent from the industry that it’s putting the needs of the investor first.”