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Wealth bosses have their say on Rathbone & Quilter Cheviot's total cost protocol

Did they get it right? Wealth management executives have given their verdict on Rathbone and Quilter Cheviot's industry-wide total cost protocol, but voiced concerns they did not go far enough.

Rathbones and Quilter Cheviot have joined forces to create a framework to estimate the total costs of running discretionary portfolios.

Following a Wealth Manager article on the topic last year, Rathbones and Quilter Cheviot decided to engage in discussions to compare their methods of calculation.

The approach they have put together (click here for full details) expresses total costs as an annual percentage in a similar vein to the ongoing charges figure for collectives.

It assumes a default turnover rate of 40% and does not include investment trust charges, adviser charges, third party administration charges for pensions and bonds, or an estimate of stamp duty. Likewise, external broker costs, dealing spreads on funds and stocks, and interest retained by the discretionary manager on cash deposits have been excluded, alongside the cost of foreign exchange transactions.

Quilter Cheviot executive director Pamela Reid, who helped to drive the initiative, said: ‘We are yet to discuss with Apcims whether they will have any input. At least we know that when we are quoting figures it comes down to a robust process.’

Paul Chavasse, who has driven the project for Rathbones, said if there was a strong consensus to tweak aspects of the method, he would consider it, so we asked five wealth management executives to give their verdict.

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Richard Charnock,Standard Life Wealth

CEO Charnock is positive about the protocol, but he said Standard Life Wealth would not introduce it.

He told Wealth Manager: ‘We operate a clean fee structure, which is very simple so we don’t think there is a need to join up. It could be entirely beneficial for others, but we don’t feel obliged to do a similar thing because we have a simple clean fee anyway.'

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Nick Sketch, Investec Wealth & Investment

Like Macdonald, Investec senior investment director Nick Sketch has also taken issue with the decision to exclude underlying investment trust charges. ‘Is it fair to include unit trust underlying expenses but not those of investment trusts?’ he asked.

He also questioned how overseas investments would be treated and whether it is right to attribute structured products and debt securities as having no total expense ratio.

Moreover, the investment director is concerned costs can be focused on too heavily and overshadow performance.

'Does increasing the focus on TER risk missing the point? Just because measuring and minimising costs is apparently easy to understand and the effects are easy to predict (by comparison with the effects of good or bad management), does that make costs necessarily the key subject?'


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Tim Boughton, James Hambro & Partners

Boughton echoed some of Macdonald and Sketch's views and welcomed the steps taken by Rathbones and Quilter Cheviot, and also said the firm was willing to engage. Nonetheless, he said adviser charges and stamp duty should be included and is concerned the framework could prove too open to interpretation.

He said: ‘This is moving in the right direction. We would love to see an industry standard model for the costs of discretionary portfolios, but everyone needs to sing from the same hymn sheet.'

Boughton added: ‘They have had a good stab at putting something together but it is about how you get the industry to adopt it, so you end up hopefully with other DFMs being transparent.’

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Chris Macdonald, Brooks Macdonald

Chief executive officer Macdonald supports the initiative and said the firm would be happy to engage in discussions on an industry-standard, although he acknowledged the challenges of accommodating the views of individual firms.

‘The work they have done on it is great. Every firm will attack it on a different angle, but the template is a very good concept,' he told Wealth Manager.

Macdonald also highlights the difficulties concerning the ongoing negotiations currently taking place between distributors and fund groups, which are likely to result in lower fund charges.

'I would question some of the timings of it. With “RDR Two” coming up, the new RDR for funds and platforms, there will be a huge amount of repricing of institutional assets. Delivering TERs for collectives will be difficult in January or Feb of next year. I am not saying don’t do this now, but the data you could get could be out of date in February so I would be tempted to defer past that.'

The CEO also questioned the decision to exclude investment trust charges.

'The other one that is difficult is ad valorem costs. On an individual basis you will take account of that, which makes standard comparison difficult,' he explained.

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Jonathan Fry, Jonathanfry plc

Private wealth director Fry welcomed the initiative to have an agreed approach on portfolio costs, however he argued the proposed turnover is too high.

As his firm seeks to be lower cost, he is undecided on its value for his business.

‘For firms that have a very transparent fee structure and want to make a feature to clients of the benefits of having such a transparent fee structure, being bundled into some form of composite rate calculation strikes me as being a step backwards,’ he said.

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