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Falling fees: multi-managers are on a mission to justify their costs

Falling fees: multi-managers are on a mission to justify their costs

Multi-manager fund charges have fallen in line with the rest of the investment industry, but they remain higher than many stand-alone funds.

‘Due to their structure, multi-manager funds tend to be expensive. There’s an element of double charging, where investors pay for the asset class exposure and a manager charge on top,’ said Ben Willis head of research at Whitechurch Securities.

The Jupiter Merlin Balanced portfolio, one of the most popular multi-manager funds with £1.6 billion invested, has an annual management charge of 0.75% and an ongoing charges figure (OCF) of 1.63%. Add in a 1% annual adviser charge and the client is incurring an annual cost of 2.63%. ‘This is a high hurdle to get over each year before you start making money for clients,’ said Willis.

The main point for advisers and clients, according to Cedric Bucher, head of Architas UK funds, is what they receive for the fee charged. ‘Multi-manager funds were conceived to make it easier for investors to diversify without the need to invest in a number of different funds or individual securities themselves. This reasoning still holds true,’ he said.

Key advantages include: removing the difficulty of fund selection across a universe of thousands, automated rebalancing within the fund-of-funds (giving rise to no capital gains tax liability), and ensuring investments continually meet clients’ attitude to risk (for risk-profiled ranges).

‘An adviser could rely on a multi-manager to create and run a portfolio of the most suitable and cost-effective investments for the client. They could carry out the necessary ongoing monitoring,’ said Bucher.

Cheaper options

Many multi-managers have introduced greater use of passive instruments in a bid to push costs lower. One of Architas’ most popular ranges with advisers is its blended funds. These use a mix of active and passive investments and cost less than 110 basis points for the lower-risk funds.

Tom Munro, director of Falkirk-based Tom Munro Financial Solutions, said multi-manager funds are ideal for clients with less than £100,000 to invest. He uses several multi-managers, including F&C Investment’s Gary Potter and Rob Burdett, who have an ‘outstanding track record stretching way back to their days with Credit Suisse’.

‘I can buy the range starting at a 1% OCF for lifestyle defensive and 1.09% for the balanced strategy,’ said Munro. ‘This offers real value given the expertise at the helm and the fact the balanced portfolio is diversified across virtually all asset classes.’

Alan Smith, chief executive of London-based Capital Asset Management, believes multi-managers remain too expensive. ‘If they do the detailed analysis on cost versus benefit, most advisers would conclude the majority of actively managed multi-manager portfolios are not worth paying for,’ he said.

‘The research would confirm that, after costs, very few multi-manager funds outperform the relevant benchmark. Of the few that do, there appears no persistency in the outperformance. So luck rather than skill may have been the relevant factor.’

Passive preference

Smith prefers using a passive multi-asset portfolio, such as Vanguard LifeStrategy funds, to meet clients’ investment objectives in a ‘clear, simple, transparent and low-cost way’. Vanguard’s LifeStrategy 60% Equity fund, for example, has an OCF of 0.22%.

‘This allows financial planners to avoid the need to outsource to multi-managers or discretionary fund managers. They can concentrate on planning and strategy, and ensure the client’s investment experience is excellent,’ Smith said.

It is an approach endorsed by Glasgow-based Independent Advisers (Scotland). It uses the LifeStrategy funds and passive multi-asset ranges such as Standard Life MyFolio Market funds and Quilter Cheviot IDX.

Alistair Creevy, managing director of Independent Advisers (Scotland), said: ‘Cornelian Asset Managers and Brewin Dolphin have introduced new passive multi-asset funds for around 0.5%. This is excellent value.’

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