CompaniesOct 18 2012

RDR to bring cost pressures ‘across the board’: Alliance

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Investors will be monitoring costs to ensure that they are not paying too much for investments post-Retail Distribution Review, as increased transparency brings pressure on managers and advisers to justify their fees, according to the new managing director of Alliance Trust Savings.

In an interview with FTAdviser, Patrick Mill, who took over his new role at the platform earlier this month, warned that people will be making a judgement to see if what they paying is worth the cost.

He said: “I think investment managers should come under pressure because, we have seen it on our platform, passive funds are very popular.”

Mr Mill compared a Vanguard tracker where investors can pay 20 basis points for a fund and an active fund which may cost 75bps, warning that clients will question whether they are getting an upturn in growth for that extra 55bps.

He added that the additional transparency around the remuneration for discretionary managers and advisers where such services are used will increase focus on whether the adviser is genuinely adding value.

He said: “We are very keen on transparency so that investors can make that judgement. Investors need to believe that what they are paying is fair.

“In term’s of the FSA’s decision on kick-backs and DFMs, if the DFM is doing something they should charge for that and if the adviser is doing something they should charge for that but, ultimately, it is the client who is paying and the end customer should be in control of what is being paid to whom.”

According to Mr Mill, Vanguard regularly tops the popularity list as advisers seem to be using this fund, and similar ones, as a “core” and then they may use some active management around it.

He said: “They have a good tracker as a core, with maybe 50 per cent of the money, and then some regional stuff. Once we get into a transparent world, clients will be making that judgement and questioning that payments equal returns.

“I think there will be a pressure on fees right across the board, across the value chain, so if you take advice the client will be saying well I am paying £1,000 a year so is that worth it to me? Hopefully they will see that the adviser gives value and that makes him worth it.”

The full interview with Mr Mill will be published later today (18 October).