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Should TERs become norm for discretionary portfolios?

by Danielle Levy on Jul 18, 2012 at 07:00

Should TERs become norm for discretionary portfolios?

As discretionary managers come under pressure to transparently disclose their charges, should an industry equivalent to the total expense ratio (TER) be applied to the private client world?

Some industry insiders highlight the range of business models and service levels on offer as an obstacle, alongside the fundamental difference between the private client and funds worlds, with the former providing a service rather than a product.

However, some firms are facing a growing number of enquiries about TERs on discretionary portfolios and against a backdrop of lower returns, they anticipate requests will only rise from here.

Several senior figures are calling for agreed industry guidelines that can cater for different expense components for clients, and recognise the differences in charging structures and business models within the private client investment management market.

Protocol needed

Pamela Reid, executive director at Quilter, says the firm is frequently asked for TERs for its discretionary portfolios and has devised what it terms a ‘total account cost’. This includes the company’s management fees, VAT and the charges on the underlying funds held.

‘[TERs] are actually quite a difficult thing to get your head around. It is a defined term for the funds industry and it is clear what is included in this for the fund,’ she says.

‘When you are looking at a discretionary portfolio, you have costs charged to the portfolio and then you are looking at what you are getting for that service. These are two variables outside the tight definition of the TER.’

Reid says this makes the need for an industry protocol all the more urgent, particularly as there is a question mark over what other firms are including in their calculations when competing for clients. This can create an uneven playing field if other firms are not factoring in the likes of stamp duty, VAT or cash take.

‘I think the industry and clients are calling out for this. We as an industry don’t have an industry standard. At Quilter we have the total account cost and it is clear what is included and how it is calculated,’ she said, adding that a sample portfolio is generally used so there can be some variance.

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2 comments so far. Why not have your say?

Morley Boy

Jul 18, 2012 at 10:38

We have only ever used companies that provide us with specific estimated TERs, for both full discretionary or managed portfolios. These have been qualified with research on past costs. 9 times out of 10 the TER's are less.... yes less than typical fund group multi asset funds.

I expect all advisers nowadays to be comparing this way? Don't they?

Although I had a client come across from a national 'Royal' sounding tied advice company last week. They had failed to give proper charges information on the suite of 6 managed funds they had recommended for a cautious investor. Their unique approach to fund management apparently.

Sid James would be turning in his grave.

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Anonymous 1 needed this 'off the record'

Jul 18, 2012 at 11:02

TER's have to include an estimate of annual dealing costs for the product, based on historic data - otherwise the acronym is flawed

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