Investments  

Passive price war beckons?

“Advisers who have been using active funds, which are still charging more than 200bps inclusive of all hidden costs, would be foolish to ignore the funds,” he said.

So are we witnessing in the UK the beginning of pricing similar to that in the US, where companies have been undercutting each other fiercely?

Mr Lowcock believes the huge size of the US passive market enables investors to benefit from economies of scale and that while the cost of investing continues to fall in the UK, it is unlikely that funds in this country will reach the size of their US peers and therefore will not benefit from the same cost savings.

Mr Smith believes there is still room for further downward pressure on passive fees, but agrees that the UK will never match the scale of the US market and the appetite of US retail investors to buy mutual funds.

“But if we can get close to the pricing they offer over there, it will be a good thing for UK investors.”

So is it a given that other groups offering passive funds in the UK, such as L&G, Vanguard and HSBC, will respond?

Mr Penny says Fidelity and FundsNetwork are a force to be reckoned with and it would be unwise for any of their competitors to be so complacent as to ignore their moves.

“At such an important time in the development of the advisory and the direct customer markets, any significant ‘land grab’ in market share could stick for the long term,” he says.

Mr Lowcock says: “It is a fiercely competitive market and size of the fund does matter. The larger they are, the more they benefit from economies of scale. We have seen fund groups respond in the past, so I am sure we’ll see it again.”

Mr Smith says there is definitely a price war going on and that the new world of increased transparency will compel other groups to respond.

But he warns that advisers will also be under pressure from clients over their fees and will need to ensure they have a very compelling proposition in order to defend and maintain their fee model.

As providers jostle to become the cheapest provider in the UK, it may be only a matter of time before another round of price cutting breaks out.