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Why hasn't the wealth industry adopted a total cost methodology?

by Elsa Buchanan on Jun 18, 2014 at 07:00

Derek Gawne, head of Charles Stanley’s Liverpool office, believes the Rathbones-Quilter methodology has not yet been adopted by the rest of the industry because he believes ‘no-one wants to conform to somebody else’s ideas’.

‘People who will want to hide things will say their activities don’t apply to the methodology. I’ve got a feeling there are too many companies with agendas, so unless it is forced on people, there will never be a standardised TER,’ he added.

This is echoed by Broadstone’s Philips, who refuses to accept that running bespoke portfolios should be used as a justification to avoid backing a standardised methodology.

‘The banks have managed it with [their] annual percentage rate of charge, because the regulator set a clear set of rules, which said “this is how you have got to calculate your costs”.’

While there was resistance from banks, Philips said business models ‘then fell into line with the disclosure’.

‘If you’re putting costs into your model somewhere along the line, it’ll have to come out, and you’ll find that you get a commonality.’ He said a standard isn’t possible due to the bespoke nature of their services.

‘For the top tier of clients who are sophisticated, bespoke is something that is required, but that is such a thin veneer of the amount of wealth that we are talking about in the UK,’ he said. ‘Most people actually want something that works for a very clean fee and it does what it says on the tin.’

While Reid explains the Wealth Management Association (WMA) was ‘very nervous about endorsing something’, Philips believes ‘fragmented’ trade bodies have shown a lack of engagement with the industry.

‘In a sense, it’s not in the trade bodies’ interest to amalgamate. We need to see stronger voices, which need to go to our policy makers so that they don’t make bad policies,’ he added.

Dr Tim May, head of the WMA, said charging across the industry is a priority for the trade body. In relation to a methodology, he said it was ‘important to highlight the huge range of business models and charging structures across our industry. Therefore any indication of cost needs to be very flexible’.

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