Wealth Manager - the site for professional investment managers

Register to get unlimited access to all of Citywire’s Fund Manager database. Registration is free and only takes a minute.

How will next leg of price war hit discretionaries?

3 comments
How will next leg of price war hit discretionaries?

The retail distribution review (RDR) has sparked a price war, with the next battleground expected to be the charges levied by platforms and discretionary fund managers (DFMs).

Asset managers have already gone head-to-head on fund charges – last month Fidelity cut fees on its passive range to their lowest ever level. Platforms and DFMs are not expected to be immune from this downward pricing pressure, but are mounting the case for value for money versus cost alone.

Daniel Godfrey (pictured), chief executive of the Investment Management Association, said: ‘The next leg of competition is going to be around platforms and that will be healthy for consumers. Ultimately what we see is that clients are willing to pay for what they believe will be the best returns. So if they are confident a manager can deliver alpha, they are willing to pay for it.’

Value for money is something Andrew Denham-Davis, director of business development at Brooks Macdonald Asset Management, said his firm offers.

Denham-Davis defended the fees his company charges, which at 50 basis points (bps) is more than double some of its competitors. He said Brooks Macdonald would not be able to maintain the quality of its business if it dropped its charges.

‘I’m not sure it’s possible for us to go to 20bps. We have to make sure we look after people and can maintain the quality of our business. Selling on price is very different to being price competitive, and it’s difficult to get that compromise,’ he said.

‘Post RDR, what has really come into the spotlight is the need to be able to demonstrate what we are doing for what we are charging. I think the industry is barking up the wrong tree, and this is about longevity, and value for money.’

David Tiller, Standard Life’s head of adviser platforms, said Standard Life Wealth charges 30bps plus VAT for discretionary services, which he considers ‘pretty competitive’.

He agrees strong brands could thrive in the new era of transparency. ‘There will be some pressure, but the flipside of that is people will pay for quality. It is particularly important when you look at discretionary management. It’s not purely about cost, it’s about whether you believe they will deliver your outcome, whatever that is.

‘With the guys that have good brands and strong reputations, people are willing to pay their fees. It’s the smaller businesses that maybe do not have the track record that might struggle.’

Sean Walsh, chartered financial planner and director at Ergowealth, said even though it appears DFMs are getting more competitive, clients are still getting stung by hidden costs.

‘There is downward pressure as clients become aware of the fees they are paying. We still do not have the transparency we would like over total expense ratios and they [platforms] are keen to keep it vague,’ he said.

‘They are offering more value than before, but it comes down to how well IFAs can negotiate.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Your Business: Cover Star Club

Profile: The godfather of fund-of-hedge-funds on the sector's future

Profile: The godfather of fund-of-hedge-funds on the sector's future

When Dixon Boardman started 26 years ago ‘there were 600 hedge funds and only 100 had $100 million – it was not even a cottage industry,’

Wealth Manager on Twitter