OpinionApr 23 2014

Adviser Rant: AMCs do not tell the whole story

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Recently I have been reading a barrage of marketing pushes in relation to preferential fund pricing that focuses primarily on funds’ average annual management charge (AMC).

My main focus is considering the overall cost to a client of the solutions I recommend. Being presented with the average cost of an arbitrary fund ‘proposition’ will not help me do this.

There are four reasons for this:

Firstly, the average costs of these funds would only matter if I intended to use only those funds as part of my client proposition – and I don’t for a number of reasons.

Secondly, the total expense ratio (TER) is more relevant than the AMC.

Thirdly, the overall cost to clients of using a platform includes TERs, platform charges and extra administration charges.

Finally, I don’t know the weighting between different asset classes – for example, is there significant weighting towards bond funds, which are cheaper anyway.

Two further aspects would concern me. Could I compliantly recommend these propositions? The regulator has said advisers should take reasonable steps to ensure the platform is presenting products without bias.

And how could I move client assets freely? These funds’ ‘special’ nature means the unit price is different to the standard, and therefore re-registration can be more difficult, if it’s possible at all.

Mike Seddon is MD at Grayside Financial Services