Over the past few years, multi-asset funds have been growing in both popularity and quantity. Multi-asset funds tend to be launched in the form of portfolio ranges, all with different allocation allowances suited to different investor risk profiles.
The fund ranges tend to have an equally confusing name, usually not explaining what the fund does. Despite this, investors flock into multi-asset funds due to their suitability for different types of investor, as well as being pension fund favourites. Some asset managers have even brought out ranges suited specifically for retirement income.
Old Mutual Global Investors for example, has the ‘Generation’ range of funds, which each have a different return and income target. For instance, the Old Mutual Generation Target 3:6 fund aims to achieve an annual return of 3 per cent above UK inflation over five years, and out of this return, the fund aims to provide a regular income of 6 per cent per annum. The Old Mutual multi-asset team is headed up by John Ventre, and has 14 funds available over different targets and returns.
One theme that has been occurring more often with multi-asset firms, has been the discount available on the platform-owned funds when bought through their host platform.
Table 1 features data supplied by platform specialists, the lang cat, and shows the discounts available to different multi-asset propositions on specific platforms. The Table uses fund range examples and then looks at the saving per £1,000 invested, assuming both a 20 per cent and 100 per cent investment.
The Old Mutual funds have the lowest discount on Old Mutual Wealth – formerly Skandia – with a discount of roughly 0.1 per cent. This means that per £1,000, investors would only save £1 if their portfolio were fully invested in that range, or 20p if it were 20 per cent invested.
The fund ranges with the highest discounts are Fidelity and Seven IM. Both offer discounts of 0.25 per cent across their multi-asset fund ranges, meaning a saving of £2.50 per £1,000 if 100 per cent invested, and 50p assuming a 20 per cent investment.
Delivering value
Fidelity has not always had such a high discount. It recently announced it had reduced the cost of its own multi-asset ‘Allocator’ fund range. The funds have been available since 1 October for a fixed total ongoing fee of 0.25 per cent, reduced from 0.45 per cent. Fidelity says the move is to demonstrate the group’s ongoing commitment to “deliver value to investors” and it is doing so because of the rising demand for low-cost options. It must be noted the group also lowered the cost of its index range earlier this year, suggesting the platform is perhaps moving to discount the rest of its own funds, leaving others at a slightly higher cost.
The five Fidelity funds affected – Fidelity Multi Asset Allocator Defensive, Strategic, Growth, Adventurous and Fidelity Allocator World funds – are each managed differently in order to reflect different levels of client risk tolerance. The funds also invest in passive index-tracking funds, and by doing so, already keep the overall cost of investing lowered.
The price cuts on the funds will also be extended to other platforms where the funds will be available for 0.28 per cent (previously 0.7 per cent), so the funds will be available elsewhere but at a very marginal 0.03 per cent difference.
In order to see if it is worth re-assessing the platforms for a discount, it is worth looking into the fund history – although of course it should be no indicator of future performance. Table 2 looks into the returns of the fund ranges across the platforms noted in Table 1. The funds all lie in different IMA sectors so have different allocation allowances.
Top performance
The top performing fund over five years comes from Seven IM – the fund range with the highest discount should the fund be invested through the platform. The £75m 7IM Adventurous fund saw a return of £1,501 based on an initial £1,000 investment according to Morningstar data – 8.5 per cent annualised. The second highest return comes from Architas, with its Multi-Asset Active Growth fund, which saw returns of £1,457 over the same time period.
Multi-asset funds have been designed to take away some portfolio construction and asset allocation work from advisers. However, one potential issue is that they can look overly simplistic on a client’s statement. But a way to show how much work goes into fund selection can be explaining the platform discounts.
Looking further into discounts for funds on platforms could be a way to save your clients more money in the future.
Five questions to ask:
1. How much are other charges? It is worth looking into how much the fund range can cost elsewhere. Even though you could find a fund with a discount, it may actually work out still cheaper on another platform.
2. What is the fund’s benchmark? Although the fund range could come with a discount, it is still important to look out for what the fund intends to do and what index it aims to beat.
3. How much administration is involved? Multi-asset funds are traditionally made to be easy for both the adviser and client, but when looking for cheaper options and discounts, more administration will be needed for fund selection. Look into how much work is needed.
4. Does the discount outweigh the cost? Every fund comes with a cost, but is the discount worth it? Add up the costs versus the discounts to see if the extra work pays off.
5. Can you justify the cost to your client? Every investor will want to know how much it will cost them. Make sure you can fully explain the costs and benefits to your clients.
