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Discretionary fees under the spotlight: how do yours compare?

by Robert St George on Mar 14, 2014 at 07:00

Discretionary fees under the spotlight: how do yours compare?

Research by Numis has revealed the divergence in pricing between some of the country’s leading discretionary managers.

The average total cost imposed by the three firms – Brewin Dolphin, Investec Wealth & Investment, and Rathbones – is 1.31% per year for clients with a £500,000 portfolio.

According to the modelling, Rathbones came out as the cheapest house with a 1.12% total cost for its fee-only proposition, while Investec was the most expensive at 1.42%.

The calculations are based on a portfolio of £500,000, and factor in 24 transactions involving funds or listed securities each year. They exclude VAT and the fees paid to the underlying fund managers.

The findings are:

Rathbones Discretionary (fee only)
Account fixed charge £100
Charge on first £1 million 1.00% £5,000
Transaction charge £20 £480
TOTAL £5,580

Brewin Dolphin Discretionary (fee only)
Charge on first £1 million 1.30% £6,500
Transaction charge £20 £480
TOTAL £6,980

Investec Portfolio Management Service
Charge on first £1 million 1.25% £6,250
Transaction charge £35 £840
TOTAL £7,090

When the portfolio size is increased to £1.5 million, the rankings remain the same:

Rathbones Discretionary (fee only)
Account fixed charge £100
Charge on first £1 million 1.00% £10,000
Charge on next £500,000 0.50% £2,500
Transaction charge £20 £480
TOTAL £12,980

Brewin Dolphin Discretionary (fee only)
Charge on first £1 million 1.30% £13,000
Charge on next £1 million 0.90% £4,500
Transaction charge £20 £480
TOTAL £17,980

Investec Portfolio Management Service
Charge on first £1 million 1.25% £12,500
Charge on next £1.5 million 1.00% £5,000
Transaction charge £35 £840
TOTAL £18,340

Brewin Dolphin, Investec Wealth & Investment, and Rathbones are among the few wealth managers to publish unified rate cards publicly.

Killik does so too, although comparisons are less clear because its transaction charges are based on a 1% dealing commission structure (with a £40 minimum) rather than a flat fee.

However, Hargreaves Lansdown’s portfolio management service stands to undercut the current market, with total costs of 0.35% on £500,000 portfolios and 0.23% on those of £1.5 million.

Hargreaves Lansdown Portfolio Management Service
£500,000 portfolio £1.5 million portfolio
Charge on first £250,000 0.45% £1,125 £1,125
Charge on next £750,000 0.25% £625 £1,875
Charge on next £1 million 0.10% £500
Transaction charge None
TOTAL £1,750 £3,500
0.35% 0.23%

There are several important caveats to all this, of course. The full cost to the end investor will be influenced too by the fund prices negotiated by the wealth manager, as well as by allocations to cheaper passive products.

The costs will also be shaped by the degree to which the wealth manager turns over the portfolio.

And perhaps most importantly, the research takes no account of the performance delivered for the client, or the overall value of the service to the client – including ease of use, communication and so on.

11 comments so far. Why not have your say?


Mar 14, 2014 at 08:26

The transaction charge is the worst bit - what's it for? The DM decides to buy or sell a fund, yet the client has to pay for the transaction - it's a tempting honeypot for the DM to dip into. £35 might not sound much, but that's one way. If you buy a fund you have to sell another, so that's £70. Then that £500k client has at least one wrapper - let's say a SIPP for him and his wife, so we're up to £140 for one decision. Assuming a conservative 10 changes a year it's £1400. That's another 0.28% onto those fees. In reality it's far higher.

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Small business owner

Mar 14, 2014 at 08:37

Clients don't mind paying slightly higher fees if they are getting good performance. But poor performance and high opaque fees are bad news for clients and the industry. Transaction charges should be banned as HL have done then one can make a like for like comparison. But if HL have poor performance............

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Dean W

Mar 14, 2014 at 08:42

This is not exactly a whole of market review. Based on the information they gave, for a Discretionary portfolio of £500,000, the firm which I work for would have a TER of 1.07% which is cheaper than the supposed "cheapest" option here.

NS - With regards to a "switch", I would hope that the DM believes that they are adding sufficient value with the transaction to justify the trade. I would note that "all inclusive" offerings are becoming more common however a much higher AMC is usually charged.

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CheltIFA via mobile

Mar 14, 2014 at 08:59

These fees are all for private clients - those without advisers.

Most, if not all, DFMs offer a clean fee to adviser clients. This means no transaction costs at all. That fee is 1% or less.

As with all DFMs you pay for the service. Its not all about fees and performance (yes, they're important).

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Mar 14, 2014 at 09:10

Interesting to see this has stimulated some conversation. Transaction fees are the thing of the past. We all know that in the background trades for say a thousand clients are bulked into a single trade at low cost, say £1 per trade in reality. Charging £35 across those clients generates £35,000 revenue.

In 2008 when DFMs had failed our clients with huge drawdown even for a 'cautious' client, they suddenly became active in selling and buying lower risk assets. They were profiteering at a time when clients had already suffered big losses. It leads to massive mis-trust of the DFMs motives for switching.

This is just one issue with the DFM world but new, smaller, more dynamic firms are doing it the right way.......... watch this space.

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Robin Kent

Mar 14, 2014 at 09:43

On the face of it about 100% more than it cost 27 years ago when the Stock Exchange was deregulated and fixed commissions banned.

Back then many stock brokers used to keep a sharp eye on their clients' costs rather than leave it to the CEO. Sticky clients meant longer personal revenue streams.

Most shunned funds because the cost drag could not be justified by extra performance. Most bought bonds and held them to redemption to reduce trading costs. And before CGT tax free wrappers most considered managing to get a single holding to increase to 50% of a client's portfolios a function of investment success, not a "weighting problem".

Oh, what went wrong?

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Mar 14, 2014 at 10:13

Price is what you pay, value is what you get - Warren Buffett

Agree with Dean W, not exactly 'whole of market' with 60 + DFM's. My firm can offer a TER of 0.95%. Performance, service etc etc

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Mar 14, 2014 at 10:43

Like Millerman, our TER is between 0.9 and 1% for discretionary service. We deal rarely, but charge when we do - the above figures are based on an actual study of 2012 and included some portfolios with 100% turnover (e.g. trust winding up). As ever, Mr Buffett is right - unless you compare performance this is only a partial study of "value".

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Dean W

Mar 14, 2014 at 10:53

I would also ask how you quantify Service along with access to your DFM. How many of the big managers give face-to-face meetings for portfolios of £500k?

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J Smith

Mar 14, 2014 at 11:31

This has to be one of the worst pieces of analysis ever!

'They exclude VAT and the fees paid to the underlying fund managers.'

They seem to exclude practically everything.

So take a typical 1.2% to 1.4% pa as per above.

Add the VAT 0.26% pa

Add the underlying fund AMC 0.75% pa

Add the fund admin charges 0.15% pa

Real Total 2.34% pa

+ wrapper fees if via SIPP etc

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Mar 14, 2014 at 13:39

Clear, simple and transparent charging supported by a compelling risk and performance journey where the the adviser is positioned as a professional and the expert in the client's affairs. All this underpinned with high quality communication, service and reporting from the DFM. Value not cost is what clients want, surely. Is that too much to ask for?

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