Advisers demand greater fee transparency from discretionaries

A raft of advisers are calling for greater transparency in the way discretionary managers are remunerated, with one adviser anticipating that discretionary managers are taking 35 basis points on top of their quoted fees.

The private client investment management sector employs a range of charging structures and operating models, ranging from purely fee-based to offset arrangements. However, a number of IFAs are calling for greater uniformity and transparency among the charging structures of discretionary managers. Many firstly question the use of retail share classes, and secondly argue that discretionary managers who do take trail should declare it in the same manner that the IFA community has to for its clients.

Steve Moseley, director of East Midlands-based Sterling McCall Asset Management, has had to ask a number of large discretionary managers to rebuild potential portfolios for clients using institutional rather than retail share classes.

‘I was surprised when I found out how they were charging. The companies replied “this is in our terms and conditions”, but I said if I knew that I would notplace business with you. You can’t charge an annual management charge (AMC) and sell funds that make you money on top,’ Moseley said.

His comments come after Citywire broke the news that Brewin Dolphin had urged its investment managers to use retail share classes rather than institutional classes, with the individual teams retaining the trail commission.

Moseley responded by calling Brewin to criticise the policy and was offered a cut in its AMC by 25% to 0.6%, provided Moseley placed £5 million in discretionary funds with the business.

Moseley said he would not place any new business with Brewin because of a lack of transparency in its approach to remuneration. ‘What sort of business model runs where they can alter the charges to the detriment of the client if we don’t give them enough business?’

From Moseley’s experience dealing with discretionary managers, he has calculated that on average they are taking an additional 0.35% in trail revenue in addition to their quoted charge. ‘They always quote a flat AMC unless you ask, otherwise they don’t say “by the way, we are getting more income from the client”,’ he added.

Xentum Wealth Management managing director Dominic Baldwin ensures that the charges are the same across all of the discretionary managers he uses.

‘With any of the discretionary managers we work with, we say they all have to be on the same terms, so they take no commission on any trades and charge a percentage of funds under management for running the money.

‘There are different ways discretionary managers can choose to be remunerated. It is quite difficult for the regular client to appreciate how charges are built up if they do not have an understanding of the service, so we look to be as transparent as possible and to completely understand if we are engaging with a different discretionary manager with a different charging structure,’ Baldwin said.