Rathbones and Quilter are to join forces to develop a framework for investment managers to estimate the total costs of running discretionary portfolios.
While the fund management industry traditionally had the total expense ratio (TER) and now the IMA’s ongoing charges calculation, there have been calls for a level playing field in terms of what should be included in estimated total cost calculations for discretionary clients.
Following a Wealth Manager article on the topic last year, Rathbones and Quilter have engaged in discussions to compare their methods of calculation in the hope of potentially bringing about greater standardisation and co-operation on the subject. It is hoped guidelines could potentially be offered to the broader industry at a later point.
‘Things are progressing to come to an agreement on how things are calculated and what needs to be in,’ Quilter executive director Pamela Reid told Wealth Manager.
While conversations are still in the early stages, subjects that are currently being discussed include whether interest on deposits are passed on to clients, as well as whether the annual management charge of underlying funds should be used instead of total expense ratios.
Reid said she felt it was now down to the industry to develop an initiative.
She added the aim was to create guidelines around the basis of potential calculations.
‘I would like it if it was adopted by the industry to get the consistency, in the absence of any formula from the regulator,’ she said.
Rathbones head of investment management Paul Chavasse added that it could ultimately be positive for the industry to show that two large operators have agreed a common calculation.
‘At this stage we are looking to see whether we can come up with a common approach. I suppose if two can manage it, there is more chance elsewhere,’ he said.
A spokesperson for the Association of Private Client Investment Managers and Stockbrokers (Apcims) said the trade body was open to feedback from members on the issue, but said it was not something it had been asked to address.
Asset Risk Consultants, which could also potentially have played a role in the formulation of an industry calculation, questions whether there is a need for a TER equivalent for discretionary managers, arguing it is more important for people to understand ‘net of fees’ performance.
‘The problem with issuing TERs for discretionary managers is that there are two to three completely valid ways in which discretionary investment managers seek to add value and associated costs,’ said ARC’s group managing director Graham Harrison.