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Wealth managers hit back over claims of ‘murky’ costs

by Robert St George on Jun 04, 2014 at 08:09

Value, not price

Brewin Dolphin, Brooks Macdonald and London & Capital also all emphasised the importance of value rather than simply price.

‘We do not select funds based purely on cost and review each fund based on the rigorous due diligence process which is whole of market, best of breed and includes a full qualitative and quantitative analysis before it goes onto our buy list,’ remarked Brewin’s Johnson.

‘The share classes may differ between platforms but we will always seek to invest in the lowest cost version of the fund selected for our models.’

A spokesperson for Brooks Macdonald told Wealth Manager that the firm was ‘a performance-driven DFM which does not populate its portfolios with the objective of producing the lowest total cost of ownership – rather they invest to gain the best risk-adjusted returns for clients’.

Brooks Macdonald acknowledged that as such it did employ passive funds ‘where appropriate’, but only on the basis of ‘what is right for the client, not what is right for our sales proposition’.

London & Capital’s Leigh concurred that value was a greater concern than price.

‘We as a firm measure ourselves against risk-adjusted performance, so that our managed portfolios perform in all market conditions,’ he said.

‘We always aim for good performance but never aim for the best performance. It is important to take this into account and for investors not to focus on purely which managed portfolio range is the cheapest or ones that create the highest returns, as these yardsticks can be transitory.’

Leigh additionally rejected accusations that DFMs simply all populated their portfolios with the same funds rather than adding true value.

‘In terms of commonality among underlying fund selection, clearly performance influences third-party selection,’ he argued.

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5 comments so far. Why not have your say?

A Bit Left Field

Jun 04, 2014 at 08:37

Just how independent was this research?

It reads to me like Skandia are keen to promotoe the costs side of their proposition and, instead of promoting that, they've appointed an 'independent' research house to publish a very murky report that utterly confuses the roles of active and passive strategies (neither should be chosen on cost alone) and then ignores asset allocation and fund selection criteria.

Just because I could buy Fund A cheaply on Skandia is not reason to buy Fund A (on Skandia or anywhere else). Clients go to DFMs for their investment input and the underlying costs are part of that - worth paying if they add value, worth avoiding if they don't.

Transparency is hugely important but this kind of report undermines transparency by introducing very murky style comparisons that have no relevance to the argument. It leaves a bitter taste even though it has nothing to do with me. More clarity and objectivity in future please.

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Jun 04, 2014 at 08:53

Since the TERs don't include all costs, the figures quoted are wrong. The true costs to the poor benighted clients of these outfits is more like 2% to 2.25% per annum.

Giving a manager money for him to give it to other managers is a mugs game, and can only be justified on the grounds of size of client (smaller clients cannot get the diversification any other way) or diversification into specialist assets that are difficult to invest in directly.

What they are practising isn't investment management as we know it. To do that you need to manage direct investments. Wrap it up in whatever honeyed words you choose, but interposing 2.25% of charges between the client and the underlying investments is only going to be to the detriment of the client.

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Jun 04, 2014 at 09:55

Hi A Bit Left Field. Always fun to see someone anonymous questioning transparency... Anyway, my company, the lang cat, provided the data to Skandia and it was done completely independently. The report itself is a Skandia report to which we supplied data; the way you know that is it's branded Skandia, not the lang cat. The chaps at Skandia actually behaved themselves impeccably during the process of bringing it all together - and to be honest, the data is mainly relatively straightforward arithmetic; there's timesing and adding but not all that much more. The data - for those who haven't read the report - is nothing to do with how stocks are selected or anything like that; it is a straight TCO analysis. To those stressing 'value not price' (bleurrgh) - it's impossible to attribute value if you can't see price, and we stand by our assertion that finding the constituent elements of TCO (and we acknowledge the portfolio turnover costs point - an industry issue which needs sorted) is far, far harder than it needs to be.

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astute investor

Jun 04, 2014 at 10:27

many thanks to mark polson... as a professional investor and having previously worked in the industry for 20 years i know investment managers need to be dragged kicking and screaming to the point of true transparency and will use any means to slow that process down because transparency will lead to more pricing pressure and a decline in my opinion margins in the industry remain way too high

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A Bit Left Field

Jun 04, 2014 at 11:26

to Mark Polson, with apologies for my anonymity, but compliance requires...

My criticism is of the fact that the article headlines 'murky' costs and then goes on to introduce investment issues. So what if a DFM is using passives? Why is that relevant to a debate on 'murky' DFM costs? I use ETFs sometimes (not that often) and the reason for doing so is net return - my concern is for the bottom line, after all implicit and explicit charges and, quite frankly, I think that everything else is an unhelpful distraction.

If a DFM offering is cheaper on one platform than another, the issue is with the platform surely, not the DFM. My objection is that the article confuses costs with investment issues - they are different issues altogether and an article that purportedly deals with 'murkiness' should try to avoid adding to that problem.

It is maybe odd that I object as I have no experience of DFMs, but I feel that the article has an inappropriate dig at DFMs.

Again, clarity and objectivity are more than useful in an article that questions the clarity and objectivity of others.

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