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View the article online at http://citywire.co.uk/wealth-manager/article/a678477

Rathbones and Quilter develop TER equivalent for discretionaries

by Danielle Levy on May 13, 2013 at 08:08

Rathbones and Quilter develop TER equivalent for discretionaries

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.

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5 comments so far. Why not have your say?

Anonymous 1 needed this 'off the record'

May 13, 2013 at 08:45

Totally disagree with ARC’s comments. A client has a right to know what they’re paying for, and it should be explicitly broken down for them. A typical discretionary client could pay:

A fee for discretionary management services + VAT

A custody fee

A transaction charge when the DFM sells/buys funds on their behalf

Entry/Exit fees on money moved in or out of the account

The charges and costs of the underlying fund holdings (i.e. the TER)

This could end up approaching 3% p.a. and I’m sure few realise it’s that expensive. It has to come out into the open.

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Anonymous 2 needed this 'off the record'

May 13, 2013 at 11:23

The only firms who will oppose this are those who benefit from "hidden" charges in their own pricing structures. Having looked at several DFM propositions over the past 12 months, it is apparent that the actual TERs are high, but quite variable across the sector. Some well known names are very expensive, while others can be quite reasonable. Why shouldn't this information be available to all investors? Greater transparency is a good thing and can only encourage competition.

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PCIAM

May 13, 2013 at 13:28

Nice not to have to be Anonymous.

I wonder whether Rathbones will include the interest turn that they take under their banking licence. With interest rates at current levels, this is not a significant earner, but I don't believe they pay interest on income balances, and I had understood that the payment of interest on capital balances wasn't a given.

Not sure who Anonymous 1 works for, but either my business is untypical or he's way off the mark. Sub 1% +VAT for a larger stock-based portfolio, max. 50 bp + VAT for a fund-based one, and dealing charges on a sliding scale from 1.6% for small value equity purchases to 40bp for something substantial, with differing (and lower) rates for other asset classes. ISAs and IhT portfolios are charged on the same basis.

No funnies, no entry/exit fees, no custody fees, no compliance fees, and we only ever buy the instituional classes of OEICs.

Oh - and clients get interest on every penny held in their segregated bank accounts.

That's it. Are we really on our own?

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JD

May 13, 2013 at 14:04

In principle, very supportive of the initiative but I think the problem may be that while TERs on, say UK Equity funds may be comparable as they are all trying to do the same thing, different DFM propositions offer very different things.

To compare an off-the-shelf (supposedly) risk-rated, platform-based fund or portfolio where the client doesn't even know who is running the money let alone have contact with them and the DFM has no CRM responsibility, with a full service, bespoke, accountable, accessible service where the client and their financial planner actually deals face to face with the individual - not even just the firm - running their money would be grossly wrong.

But this is what is likely to happen unless everyone is very careful. Has this been considered by Rathbones and Quilters I wonder?

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Rob Stevenson

May 18, 2013 at 09:49

Well they've got to do something right? As clients become increasingly interested and learn more about investment management, so the market will start to shift from supply to demand (the real objective of the the RDR).

Many DFM's have pretty binary propositions, frequently predicated on fear and greed. Even the hardiest capitalist has questionned their motives since 2007. While it might sound boring, integrated financial planning is critical to the success of a sound investment management proposition these days. Unless you're going to do a 'Nutmeg'.

While banks simply can't pull off a fiduciary proposition, many DFM's could, if only they would appoint some individuals with a financial planning background to their board.

As for benchmarking charges, it's been tried so many times in the past and it's never really worked (obviously, as they wouldn't be trying it again now right?). There are just too many players and too many layers of intermediation in retail investment management. As always, motive is key.

www.kingmakersgroup.co.uk

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