Discretionary managers will come under pressure to make their overall costs clearer to clients, according to a new report from the Lang Cat consultancy and platform Skandia.
The report was designed to look at the total cost of ownership (TCO) of a series of discretionary model portfolios on platforms, including Skandia’s WealthSelect portfolios.
But in compiling the report, the Lang Cat’s Mark Polson said it was difficult to obtain full information in terms of costs, underlying holdings and turnover in model portfolios from the discretionary managers.
Speaking to Investment Adviser, Mr Polson said it was likely DFMs were hesitant to give up their “intellectual property”, which is what investors are essentially paying for with the model portfolio charges – fees that typically range between 30 basis points and 60 basis points.
However, he said there was likely to be pressure on DFMs to freely disclose such details because without them, advisers would be hard-pressed to easily discover whether a given portfolio was suitable for their client.
In the report, Mr Polson said the WealthSelect’s lack of a headline model portfolio charge was a “game changer” in this regard because it meant Skandia was happy to disclose all information without intellectual property to protect.
He said he expected the Skandia model to be “the start of real price pressure on model portfolio charging”.
“Transparency is a key part of that,” he added. “We think it can’t come soon enough and will watch the sector with interest.”
The report’s discretionary managers were chosen because they are among the most popular with advisers who outsource clients using a discretionary manager via a platform.
Portfolios from Brewin Dolphin, Brooks Macdonald, Investec Wealth, London & Capital and Standard Life Wealth were analysed by the Lang Cat.
Skandia’s Tom Hawkins, head of UK proposition marketing, said the research had highlighted the issue that there was still a “lack of transparency in the market around cost”.
While the Ucits-compliant fund industry is being forced ever further towards full-cost transparency, discretionary model portfolios are not yet caught up in such transparency rules.
But Mr Hawkins said there should be “more pressure from the market to uncover prices and what each charge is for”.
“The more clarity the market can give to advising customers, the better,” he added.
The report concluded that there were large disparities in TCOs for a discretionary model portfolio on platforms.
It found the WealthSelect range on Skandia was cheaper than any DFM range, with the exception of a £75,000 Isa pot, where the cheapest was London & Capital’s portfolio 5 on Ascentric.
