The discussion about the transparency of fund costs has gained momentum as a result of legal rulings, notably the judgement of the Federal Court of Justice (BGH) in October 2023, which declared the flat-rate costs of a DWS fund to be non-transparent and therefore invalid. Some capital management companies were required to revise clauses, while BaFin clarified the rules on costs.

According to Morningstar, annual costs are around 1.71% for equity funds and 1.07% for bond funds, with a slight downward trend.

The BGH judgement (Ref.: III ZR 216/22) clarified that clauses on flat-rate costs that do not adequately define which costs are incurred by investors are non-transparent and, therefore, invalid. The judgement has been a wake-up call for the industry. The Frankfurt Regional Court has now applied this decision in a partial judgment on cost regulations to the Concentra fund from Allianz Global Investors (AGI). The flat-rate fee was also addressed here.

In detail, the issue is whether there is a fixed partial amount of the flat-rate fee that is attributable to the distribution fee. It, therefore, depends on clear allocation and, thus, the transparency of the flat-rate costs.

According to the judgement, Concentra's contested cost clause is „identical in wording“ to the clause objected to by the BGH. Lawyer Jens Graf sees this as a trend. The new judgement shows that the BGH ruling is not only applicable to one fund, but also to funds of other asset managers. Flat-rate cost clauses often leave it unclear how withdrawals are calculated if there are no trading days, for example, or in which exact period the fees are incurred. This is sometimes incomprehensible to investors.

Within the industry the issue of cost clauses remains a central topic of discussion. The Federal Financial Supervisory Authority (BaFin) commented on this when the cost clauses were last amended during 2024. It had taken up aspects of the BGH judgement on this topic.

An industry representative emphasised that every detail is important when it comes to transparency in cost clauses. Companies must, of course, ensure that their clauses correspond to the decisions of the BGH. The period in which the cost clauses were reviewed or challenged also plays a role here. These circumstances may have changed considerably over time. It remains important to emphasise that companies have not acted deliberately in the past when it comes to a lack of transparency in the clauses.

Overall, however, the industry appears to be fairly relaxed about the situation. Very large claims do not seem to be feared. However, from the providers' point of view, it remains to be seen how future legal disputes will develop, what the judgements say in detail, and whether any new decisions reach the BGH.

In response to an inquiry, BaFin has clarified that its reviews are primarily supervisory. „Cost clauses in investment conditions that have already been approved by BaFin are subject to grandfathering and can at best be challenged under civil law,“ the supervisory authority explained.

Despite this grandfathering of earlier regulations, the authority has also reacted to the BGH ruling of 2023: „BaFin has approached the capital management companies about the BGH ruling. As a result, it can be observed in the industry that the capital management companies are revising, or have already revised their cost clauses, due to the BGH ruling.“

BaFin's model modules were last revised in May 2024. „New cost clauses to be approved by BaFin are reviewed based on the BaFin model cost clauses, which include the considerations of the BGH judgement of October 2023", the authority explained.

The industry's reactions to these developments vary. Some companies have reportedly made adjustments, while others refer to previous practices and approval from BaFin. For example, they point out that clauses were based on earlier BaFin model modules and were considered customary in the industry.

„Even if we consider the BGH ruling of 5 October 2023 against DWS to be wrong on the merits, it is hardly surprising that a lower court has taken up the BGH's decision,“ a spokesperson for AGI is quoted as saying in the trade magazine „Fondsprofessionell“. AGI also points out that the claim asserted by the plaintiff has not yet been decided on the merits of the judgment.

Regardless of the reticence in the industry, the judgements of the BGH and lower courts could bring financial benefits to investors. Lawyer Jens Graf, who is conducting several proceedings on non-transparent, flat-rate cost regulations, has reported claims for repayment in the four-figure range per investor. „It's all about the amount of the repayment and no longer about the question of whether the claim is justified,“ Graf asserts.

A key issue is how to ensure transparency in the cost clauses. An industry expert explains that when it comes to transparency in cost clauses, every word counts. Every company can show its cards with regard to whether its clauses adhere to the guidelines that have been decided by the BGH.

BaFin also emphasises the importance of clear regulations: „The model clauses list the expenses as well as the remuneration to which the capital management company, third parties and the depositary are entitled and which can be charged to the investment fund. All relevant facts must be fully covered, and blanket opening clauses must be avoided.“

The debate on transparency shows how important clear regulations are for consumer protection. Such judgements are valuable for consumer centres. They are now examining whether they can also take action on behalf of consumers in light of the latest ruling, according to a request from the consumer advice centre in Baden-Württemberg. Consumer protection organisations have been campaigning for low-cost ETFs for years.

Meanwhile, another consumer complaint has been filed. This time, it concerns a unit-linked life insurance policy that was recommended as a retirement provision despite the high cost burden.