Skandia sees a MoM opportunity with RDR

According to Ryan Hughes, portfolio manager for Skandia, the additional costs associated with fund of funds structures could prove to be a good opportunity for manager of manager structures after 1 January 2013 – D-Day for the FSA’s new regulatory regime for investment advice.

Mr Hughes said: “It is crucial that any fund manager strives to ensure fair remuneration for the talent of his team, without taking away from the outperformance generated for the clients.

“However, IFAs need to have absolute confidence that what the client is paying for a fund, and in particular what sort of risks are attached to these funds, are the right levels for the individual. If the adviser can prove total suitability of fund to client, then the issue of cost melts away.

“However, in terms of the types of multi-manager fund structure, it is possible to shave off a few basis points in terms of costs.”

He pointed to research conducted by the team at Skandia, carried out on multi-manager funds in the Investment Management Association Mixed Investment 20 per cent to 60 per cent Shares sector and the IMA Mixed Investment 40 per cent to 85 per cent Shares sector. In the 20 to 60 per cent category, the average total expense ratio of a multi-manager fund was 2.01 per cent.

The average fund of fund structure had a TER of 2.03 per cent. This compared with a total of 1.77 per cent for a manager of manager structure - a difference of 0.25 per cent in the TER. For the 40 to 85 per cent category, the difference in TER was 0.38 per cent - 1.81 per cent TER for a manager of manager compared with a higher average of 2.19 per cent for a fund of fund structure.

The overall average in that IMA category was 2.16 per cent.

Mr Hughes said: “While we are talking a few basis points, a little difference in cost can still make a significant difference to a client’s overall investment portfolio.”