Gov’t wrestles with managers

That is certainly the view of David Ferguson, chief executive of wrap platform Nucleus, who noted various pressures on the active brethren.

These include the march of passive investing – an area that is now producing its own behemoth fund groups, such as Vanguard and iShares, with others like Dimensional rising through the ranks.

It would also be remiss not to mention the RDR, which has put pressure on fund management charges by, if nothing else, bringing greater transparency about who gets what.

But Mr Ferguson believes the real shake-out may be just beginning on a number of different fronts.

Markets may still be enthralled by manager moves, asset classes falling out of fashion, major macroeconomic developments, and the expansion of European or international firms in the UK market – all of which could arguably be considered disruptive.

But Mr Ferguson said another growing pressure on active fund management fees was also coming from increasingly powerful discretionary fund managers.

Such money managers wield considerable power: the ability, for instance, to move a large amount of assets if the price of a fund isn’t right.

The big fund distributors can also adopt a similar approach. An example of this is St James’s Place following Neil Woodford to his new firm.

The wealth manager had a fund run by Mr Woodford when he was at Invesco Perpetual but chose to stick with the manager as he was setting up his own business.

Mr Ferguson also suggests the whole design of fund management may change.

Such money managers wield considerable power

It will see core fund management provided for a few basis points, with satellite funds or mandates promising to add a lot more value. These targeted, concentrated vehicles may even be able to charge significantly more.

We have heard this before, but if fund managers did take a clean sheet of paper, then designing a retail fund management operation today would look significantly different.

Where, however, is the regulatory or political pressure? Here comes the disruption – potentially.

We know there is a price cap in pensions with auto-enrolment thanks to the government, and there is an outside chance of one in default drawdown of some kind. But isn’t this a government minded to let the market do its work?

This is perhaps the most significant point from Mr Ferguson.

He suggests the regulator will promote competitive fund management fees so a larger proportion of savings can be reinvested into the economy via funds, rather than purely going onto fund managers’ bottom lines.

We have already seen the Competition and Markets Authority looking to get very tough on energy companies. The FCA has a much stronger competition mandate, too.

It is likely that a Conservative government will want to let markets work, but it may run out of patience if it believes investors’ money is dragging the economy rather than supporting it.

John Lappin writes on industry issues at www.themoneydebate.co.uk