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'Don't give away alpha': Fidelity stands firm on fund pricing

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'Don't give away alpha': Fidelity stands firm on fund pricing

Fidelity Worldwide Investment will not be cowed into slashing its fund prices to secure preferential treatment from other platforms, according to Hugh Mullan, the group’s UK managing director.

Fidelity has not been one of the eight asset managersOld Mutual, Cazenove, Schroders, Henderson, Threadneedle, Neptune, Investec and Standard Life Investments – to declare that they will offer ‘super clean’ share classes to Standard Life’s distribution platform.

While Fidelity is seeking access to the same terms for its own platform, Mullan (pictured) is also responsible for Fidelity’s own suite of funds and he is conscious of the need to protect margins on them.

‘I don’t want to give away the managers’ quality and Fidelity’s depth of expertise,’ he told Wealth Manager. ‘I don’t want a commoditised product.’

While Fidelity offers relatively niche funds from star managers such as Citywire AAA-rated Alex Wright, it also has multi-billion-pound core products headed by the likes of Ian Spreadbury in more keenly priced sectors.

Mullan confirmed that he had no interest in racing to the bottom of the pricing spectrum with such funds. ‘Ian Spreadbury is a very high quality manager and we shouldn’t treat him as a commodity,’ he commented. ‘If it’s just a price-based discussion, people will fail to see the value. We would encourage people not to give away alpha.’

Equally, Mullan was sanguine about the prospect of this stance risking Fidelity’s products being excluded from other platforms. ‘We’re comfortable if the funds don’t end up in some of the restricted ranges from distributors,’ he stated. ‘You have to have confidence in your own product.’

On the subject of platforms, Mullan argued that while the pressures on asset managers to lower prices may be beneficial to fund buyers, the same forces are handing platforms too much control over the industry.

Cofunds recently became the latest to write to fund groups to demand access to whatever fee deals they struck with other platforms.

Mullan appreciated the advantages such moves wrought insofar as they lowered costs, but expressed concern about the implications of the trend. ‘It may be uncompetitive if it concentrates power with distributors,’ he explained.

He added that, with rivals to Fidelity’s FundsNetwork such as Skandia taking the restricted approach, choice was being further constrained. ‘There are lots of our competitors who don’t deliver good customer outcomes,’ said Mullan.

Fidelity’s platform, he insisted, would remain ‘completely independent and not commercially biased’.

Mullan maintained that this had not changed following his meeting with around 80 fund houses on 9 October. At that session, Fidelity unveiled a new programme it is calling Access.

Under this scheme, Fidelity is promising participating asset managers enhanced marketing support – such as inclusion in investor events – in return for access to the cheapest share classes they have made available.

Fidelity has stressed, however, that fund groups opting out of Access will not have their ranges downgraded in any way and emphasised its commitment to its ‘open architecture’ model.

A central component of this is Fidelity’s ambition to expand its product range. ‘As a distributor, we realise we won’t perform in all assets at all times,’ Mullan acknowledged. His next steps to plug gaps in the Fidelity suite will entail doubling its number of tracker funds, with a focus on emerging markets and Asia, and the rollout of more enhanced income products, which employ covered calls to boost dividends.

‘Fidelity is a pragmatic organisation,’ stated Mullan. ‘Our platform should offer the products that customers want. If you don’t offer them a component of what they want, you will lose them to competitors.’

Equally, Mullan expressed confidence that Fidelity would not start losing its star managers to competitors. ‘Managers like working here,’ he observed, stressing their autonomy, access to Fidelity’s analytical resources and distribution capabilities, and the fact that most are shareholders in Fidelity, a private company.

Mullan contrasted Fidelity’s recent experiences in succession planning with those of other houses. Schroders, for instance, has shed almost £2 billion from its UK Alpha Plus fund since the hurried announcement of Richard Buxton’s departure.

Fidelity has arranged a transition period of almost a year on the China Special Situations investment trust ahead of Anthony Bolton’s retirement, and four months for Citywire Selection manager Allan Liu as he steps down from Fidelity South East Asia to focus instead on its Luxembourg-domiciled equivalent. ‘We’re willing to take those sorts of decisions that harm P&L but are ultimately good for the business,’ commented Mullan.

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