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View the article online at http://citywire.co.uk/wealth-manager/article/a738014

GAM boss: we can and should resist discounting our prices

by Robert St George on Mar 07, 2014 at 06:59

GAM boss: we can and should resist discounting our prices

David Solo, group chief executive officer of GAM, has insisted that his group will not cut its fees to attract greater flows.

In 2013 GAM’s assets under management (AUM) declined by 4% to £47 billion, due in part to outflows of £1.75 billion.

‘When somebody asks me why I wouldn’t accept a big new ticket at a 25% discount to normal fees in a period of slow net new money or maybe soft performance, the answer is that it is extremely hard to ever raise your prices,’ Solo said.

He noted too that GAM’s agreements with many of its large investors guaranteed them the lowest available rates, so any discounts would significantly detract from revenues.

‘Making a decision to discount fees in the short-term would certainly allow us to boost reported AUM and net new money, but it would not be a profit-maximising strategy for the company in the medium and long-term,’ explained Solo.

‘Unlike many firms in the industry, we do not focus on growing assets. We focus on growing profits and that’s a big difference. Therefore, we have to be willing to forgo new asset opportunities if they don’t meet our strict profitability objectives.’

Indeed, despite lower assets under management, GAM posted a 15% rise in net fee and commission income to £415 million in 2013.

‘Clearly, this is the result of the significantly improved average margin across the business, demonstrating concretely our pricing discipline and success in developing the higher margin products that increasingly discriminating clients really need,’ Solo commented.

During the year GAM’s margin on investment management climbed to 84.3 basis points from 75.8 basis points in 2012. Three quarters of the increase in the group’s revenues came from higher management fees, with the balance from performance fees.

Why give up capacity at a discount?

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