Many of the country’s biggest wealth managers expect the average price of an actively managed equity fund to fall to as low as 50 basis points (bps), with fixed income products potentially costing just under half as much.
An exclusive Wealth Manager survey of the top 100 private client fund selectors found a large proportion expected fund charges to be squeezed down further.
The majority of fund groups set the bar at 75bps in the rush to launch clean share classes following the retail distribution review, this has already been pushed down by many distributors, with that trend expected to continue.
‘Actively managed equity funds may see total expense ratios come down to 50-65bps, while active fixed interest could fall to 20-40bps,’ said Ben Gutteridge, head of fund research at Brewin Dolphin, which holds £12.1 billion of client money in collectives.
Similarly David Coombs (pictured), head of multi-manager at Rathbones, which holds £8.6 billion in collectives, said he anticipates core equity funds charges will come down to 50-60bps with ‘core fixed income 30 to 35bps’.
Alan Scrimger, head of funds research at Ashcourt Rowan, also backed 50bps becoming the new standard, saying: ‘Long term, I sense most funds that charge more today will reduce their fees to 0.5%.’
However, wealth managers believe the top performing active managers will be able to retain their pricing power, with Sarasin’s Sam Jeffries saying: ‘We think in due course it may be that we see more differentiation in price as the better quality managers are able to justify a higher fee for better performance.’
Scrimger added: ‘People need to be prepared to pay a premium for smaller funds or boutiques.’
However, Chartered Institute for Securities & Investment senior reviewer Jonathan Beckett warns the squeeze on fees risks exacerbating the dominance of a smaller number of large fund groups.
He points out that whereas in 2008 the 10 largest fund groups controlled around a third of the industry’s assets under management, that figure has since risen to more than a half.
‘The retail distribution review is creating a premier league of fund managers. The largest will continue getting larger and the share in assets is concentrating among the top 10 firms,’ Beckett said.
‘This bodes badly for long-term competition and customer choice. As fund selectors we should think long-term when taking short-term decisions.’
How low can charges go?
Mark Harries, Swip:
‘I’m not sure they will fall much lower in 12 months. Longer term, charges could be significantly lower but we are starting to get to very thin margins already.’
Stuart Fox (left), Lord North Street:
‘There will probably be big competition to cut fees as more investors become wise to the value that is eroded by fees and passive options increase in popularity. Hopefully a balance will be struck so that it’s economical to employ high quality active managers and their teams.’
David Coombs (centre), Rathbones:
‘Core equity 50 to 60bps, core fixed income 30 to 35bps.’
Tomi Satchell (right), JO Hambro Investment Management:
‘Perhaps 50bps, but the best managers will retain pricing power.’