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View the article online at http://citywire.co.uk/wealth-manager/article/a722191

Wealth managers must address their role in fund market oligopoly

by Jon ‘JB’ Beckett on Dec 03, 2013 at 11:58

It is early days but the biggest presumption made about RDR is that it will force fund managers to become price takers as customers become price makers.

RDR was designed primarily to target adviser standards in the industry and the coincident platform thematic review to unbundle fees. Fee unbundling should give customers more transparency but not necessarily more choice since that also relies on competition and a healthy fund market with many providers.

Large fund houses are responding by increasing their asset bases in order to lower operating break-even points and improve their economies of scale to offer lower charges.

As advisers and platforms find it increasingly difficult to insource the investment component then fund houses effectively become price makers. Smaller fund houses have far less leverage with distributors and therefore become the new price takers.

Changing strategy

As the distribution landscape changes then so will the stratagem of fund houses. Some fund houses will target online, direct to consumers; others upstream high net worth and family offices. I used to be in cross-border fund strategy and appreciate just how tactical fund houses can be in order to win.

As fund selectors we have increasingly moved assets from the many fund managers to the few, creating burgeoning superfunds.

Be in no doubt that what we do is Darwinist, deliberate and divisive to the long-term competition of the fund market and long-term returns of our investors. Free competition, not regulation, is the best friend of the investor.

Jon ‘JB’ Beckett, chartered MCSI, was writing as author for the Chartered Institute for Securities & Investments. He is also a gatekeeper for a well-known UK bank and one of the UK’s largest pension unit-linked fund ranges

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1 comment so far. Why not have your say?

PCIAM

Dec 03, 2013 at 16:55

Free competition and a willingness to break away from the fund-based service that "wealth managers" offer. As the percentage of Rathbones FUM held in collectives rises past 40%, is it not time to be go the other way?

Take a step into the bright sunlit meadows of free choice, of portfolios with TER's of sub 1%, of portfolios invested in the time-honoured assets classes of equities and bonds without layers of cost.

I can understand why the "Wealth Manager" name is so popular - none of you manage direct investments any more.

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