Michael Dobson, chief executive of Schroders, has accepted lower margins as the price for a better blended business.
In the first quarter, Schroders recorded a margin on its average assets under management of 53 basis points, slightly down from 56 basis points in both the equivalent period of 2013 and for the full year.
‘It is partly a good result because it means we are growing our multi-asset business, we are growing our fixed income business, which have been two important strategic objectives,’ said Dobson (pictured).
‘A lot of what is happening is actually positive because we are growing in areas we wanted to, which have good longevity and good strategic rationale, albeit lower fees. That is most of what is happening now, rather than having to cut fees to compete.’
Of the group’s total assets under management of £238 billion, £44.8 billion is now in fixed income with £54.6 billion in multi-asset. That is up from £41.1 billion and £47 billion, respectively, at the same point of 2013.
Dobson noted too that 12 years ago margins at Schroders had been below 40 basis points.
‘A part of our strategy while we were contracting in institutional, seeing net outflows every year, was to focus on higher margin business. We drove the average fee up from 39 basis points to 60, but at a time when we weren’t at all in fixed income, contracting in multi-asset and contracting in institutional,’ he said.
‘That is now a completely changed picture. I think the blend of business we have – some high margin retail, albeit not quite as high margin as it used to be for competitive reasons; some low margin but greater longevity – that is the mix we want.’
More broadly, Dobson suggested that fund charges will continue to fall.
‘I think fees are – for the industry; I don’t think this is Schroders specific – coming under some pressure, certainly in retail and in some cases in institutional,’ he observed. ‘I expect there will be a reduction, not dramatic but probably sustained over some period of time.’
Dobson predicted that margins would continue to slip by ‘a basis point or two a year, but not every year’. He continued that his ‘guess’ would be that margins would ultimately stabilise ‘in the high 40s or something like that’.
He added: ‘I think Schroders can handle that.’