DFMs admit their fees are likely to fall further

Discretionary managers have admitted ongoing market pressures are likely to force them to reduce their charges further.

Speaking at a roundtable last week, the managers said prices were likely to come down in the face of cost competition but also due to improved efficiency in areas like IT systems.

But the managers warned that no amount of downward pressure would make them the cheapest investment offering for advisers.

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Andrew Denham-Davis, director of intermediary sales at Brooks Macdonald, said: “Downward pressure on prices will carry on for a period of time but it can only go down so far.”

Mr Denham-Davis said prices would have to continue to fall for the industry to remain “competitive” with other investment options available to financial advisers.

He said such reductions could be achieved in part by “investment in information technology” to make the process more efficient.

The managers were speaking specifically about the cost of model portfolios available on platforms such as Novia and Standard Life, rather than bespoke portfolios that can be obtained directly from the DFMs themselves.

The discretionary managers added that a substantial proportion of their asset growth was coming through platform business, particularly in the wake of the RDR.

Julian Menges, head of the managed portfolio service at Quilter Cheviot, emphasised the need for greater efficiency.

He said it was likely the price of Quilter Cheviot portfolios would vary from platform to platform in the future, depending on the efficiency of the platform hosting the portfolios.

He explained: “If platforms become more efficient, then charges will come down.”

Robin Beer, head of intermediary sales at Brewin Dolphin, said he wasn’t sure how much lower model portfolio costs could or should go.

“Are we going to worry about 5 basis points when you look at the overall value of returns delivered,” he said.

However, Sean Walsh, director of IFA firm Ergowealth, said discretionary managers should not be dismissive about client concerns over pricing, saying it was still a major topic that his clients continue to raise.

“DFMs should not dismiss people’s sensitivity on price. People are still overpaying for what they are getting,” he said.

Mr Walsh, who outsources all of his clients’ investment management to DFMs, added there was a strong argument for getting a public “absolute cost” of ownership when it comes to investing in discretionary portfolios.

“We are getting sufficient cost information on just the DFM charge itself but to get down to the absolute true cost of everything is still a little hazy,” he said.

Discretionary view: Need for transparency

Some discretionary fund managers (DFMs) have been criticised in the past for their murky and opaque charging structures. While the investment management community has been forced to reform, some DFMs have lagged behind. It is clear that more needs to be done to make DFM pricing as transparent as possible.