I have to respect Liontrust’s spunky reaction to Hargreaves Lansdown banning one of its products from its list of recommended funds.
The fund industry’s mighty direct-client gatekeeper struck Liontrust’s Macro Equity Income fund off its Wealth 150 list, citing recent “weakened” stock selection and “relatively high fees”.
Hargreaves has always insisted that the removal of a fund from its Wealth 150 doesn’t mean it thinks investors should sell the fund – it means there may be better alternatives available to those considering buying it.
The fund managers have stakeholders of their own and it’s only a matter of time before they start to reassert their pricing powerBut investors in the Macro Equity Income fund will still of course react to Hargreaves’ assessment with concern, if not dismay.
Reporting on these ‘buy list’ stories over the years, we’ve found that being taken off them puts companies in an awkward PR predicament.
On the one hand, they probably disagree with the negative analysis that’s been published and want desperately to respond to it. On the other, criticising the work of the brokers would be biting the hand that feeds you.
More often than not, a company that finds itself in this ‘Catch 22’ situation quietly acquiesces with a ‘no comment’.
But not so for Liontrust’s chief executive John Ions.
“I would not criticise [Hargreaves] for taking us off the list because their business model has been successful, but it doesn’t mean I should change mine because they tell me to,” he said.
“We don’t try to get business by offering some a slightly cheaper price than the next person.”
It’s worth pointing out that Hargreaves’ claims about the fund’s fees are explicitly made in the context of performance. It points out that the fund has underperformed its sector average in the past four years.
Sometimes, the firm says, it is worth paying higher management charges for an exceptional fund – otherwise it prefers to see lower fees.
But what’s interesting about Mr Ions’ stand against the ever-downward pressure on fund managers’ prices is that it could reflect a wider shift in industry relationships.
Because the platforms have been forced to ‘unbundle’ their prices due to the RDR, they are now fighting a battle to show they are competitive on price.
And they are using their gatekeeper status to pass this pressure onto fund managers, by demanding the managers offer their clients cut-price deals if they want distribution.
But the fund managers have stakeholders of their own and it’s only a matter of time before they start to reassert their pricing power.
All this is made even more imperative by the impending arrival of Mifid II, which is set to force fund houses to pay for their own research rather than bundling it into broker commission.
I wonder if Liontrust’s plucky stand could be the first of many.
John Kenchington is editor of Investment Adviser
