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Closet index funds

In 2018, a group of asset managers in the United Kingdom was required to pay £34m in compensation to investors who overpaid for ‘closet index funds’ following an investigation by the UK’s Financial Conduct Authority. Closet index funds charge investors higher ‘active’ fund management fees, but deliver fund performance that is closer to tracking a benchmark or an index.

In 2017, the FCA estimated that there is around £109bn invested in ‘active’ funds that closely mirror the market, yet charge significantly higher fees compared to passive funds. Asset managers were required to reimburse investors for the higher charges that they paid on these funds.