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View the article online at http://citywire.co.uk/wealth-manager/article/a744191

Exclusive survey: where wealth managers expect fund prices to settle

by Robert St George on Apr 09, 2014 at 11:31

‘Hargreaves Lansdown, as the biggest, has generally done the end investor some sort of service by being a bit of a trailblazer on this,’ recognised Summers (pictured).

‘But at the end of the day, price is just one aspect of fund selection. Frankly, I have never chosen a fund based on five or 10 basis points. If one of my analysts comes to me and says “I can’t choose between fund A and fund B, but fund B is 10 basis points cheaper”, I will say “You haven’t done your job well enough”. You must be able to choose between fund A and fund B on a qualitative ground over and above 10 basis points. We are indeed pushing to get that extra 10 basis points, because it all adds up and we should try to do it, but the danger is we lose the bigger picture.’

Ford too saw risks in pushing prices too low. ‘If it’s a race to the bottom, we’re not going to get quality products. As a house with no product, I need quality providers. There has to be a natural floor,’ he argued. ‘I think fund pricing is now getting in the way of an effective discussion about what you’re actually paying for your service.’

That discussion, of course, will eventually become one between wealth managers and their clients as well as between wealth managers and asset managers.

‘I think within five years we will have total expense ratios on discretionary services to allow valid comparisons between other forms of service,’ Ford predicted. ‘Therefore, input costs like unit trusts become important.’

Bathgate expressed confidence, though, that such pressure would be exerted on the fund groups. ‘Clients are asking more questions about fees; they want total expense ratios,’ he commented. ‘It’s all good, but the value chain is getting squeezed and it seems to me the asset managers are going to take the brunt of that.’

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