InvestmentsMay 29 2013

RDR has fed into ‘monster funds’, says Pemberton

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ByFiona Nicolson

Mr Pemberton, investment director for wealth manager HFM Columbus, said a more rigorous regulatory environment following the retail distribution review has led to the increasing use of so-called ‘model portfolios’ by financial advisers, sometimes through a third-party arrangement with a discretionary fund manager, or through online asset allocation and fund selection tools.

He said: “The direct beneficiaries have been the large, established ‘winners’ of the fund management world, which tick all the necessary boxes in terms of past performance screenings and qualitative process.

“But my concern is that an increasing number of these funds will be closed to new investors to prevent them becoming too large to manage, thereby threatening returns to existing investors. It has happened in the past and the indicators are that it is likely to happen again before too long.”

He said the “obvious solution” for investors would be a retreat to the world of passives but added “there is no monopoly of wisdom in fund management” and there are plenty of other, smaller funds also generating strong returns for buyers to select.

Adviser view

Duncan Glassey of Wealthflow in Edinburgh said: “The fund can increase to any size, as you are just trying to replicate the stock market prudently to get the best return. If more people took the passive approach, we wouldn’t have closed fund issues.”