Is discretionary fund management, as offered by advisers, due to feel the chill wind of the charges debate?
Skandia has effectively issued a challenge to its peers by publishing independent research from the Lang Cat’s Mark Polson suggesting that Skandia’s WealthSelect 5 comes in at a lower total cost of ownership (TCO) than many rival portfolio management services available on other wraps.
The research is worth checking out and shows pretty dramatic savings across 10 years. The cost issue is the salient finding, although it must be said Skandia’s range is more limited, which is one area it differs from other firms.
Yet two other points besides the TCO are very interesting. Mr Polson suggests it was very difficult to obtain information.
Passive advocates may still believe it is a waste of effort, but it may not be such an obvious waste of money. John Lappin“Finding out the allocations, fund content, share class choice, historic composition and trading was enough to have us weeping into our herbal infusions,” he said.
If a consultancy that specialises in finding this information had so much trouble, this must be a concern for IFAs who want to do due diligence and demonstrate it.
Second and intriguingly, Skandia is offering providers access to active fund management at a comparable total expense ratio to portfolios that have much more passive exposure. This is at least a small spanner in the works of the traditional passive case.
Passive advocates may still believe it is a waste of effort, but it may not be such an obvious waste of money.
One gets a sense that this is the first salvo in one of the final engagements in the cost debate. We may see more providers suggesting they have slain the cost dragon. Advisers may demand more information as they become determined to win the best deal for clients.
And regulatory and media concerns may worry that the layers involved with a central investment proposition could all add up to a high TCO. These factors should mean transparency increases and average charges come down, sooner rather than later.
Hopefully, there will also be room for a debate about the quality of the fund management, the asset allocation and the subsequent performance, too.
There has been a suggestion that wealth and discretionary fund managers are the last bastions of high charging. Actually, this characterisation may be too harsh, although the sector may not be as competitive and is certainly less transparent than other parts of the market.
Yet because they are increasingly important for investment advisers as part of the solutions many offer to clients, and because the FCA is increasingly losing patience with advisers about disclosure of costs at the client end, then I suspect advisers need to drive this debate.
For the moment though it is also important to ask whether there is a response from the firms discussed in this report or perhaps, in the longer term, a response in terms of what they offer
John Lappin blogs on industry issues at www.themoneydebate.co.uk
