Buyers call for fee cuts after SL-Aberdeen deal

Buyers call for fee cuts after SL-Aberdeen deal

Fund buyers and analysts have called for fund fee reductions following Standard Life’s takeover of Aberdeen, asking that economies of scale arising from the deal be passed on to the end-investor. 

Aberdeen chief executive Martin Gilbert, along with his Standard Life peer Keith Skeoch, have attempted to woo shareholders of both companies by touting the deal's cost savings of around £200m.

But with fee pressure from passives widely cited as a competitive threat, buyers have suggested the merged £660bn asset manager would miss a trick by banking savings rather than using scale to benefit clients.

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Coram Asset Management portfolio manager James Sullivan, also an Aberdeen shareholder, said not using scale to reduce fund charges would be “short-sighted”.

He said: “There is no point in having [synergies] if the end user doesn’t see the benefit and it all goes onto the [profit and loss account]. It’s not really the point; they’re supposed to be passing on the cost savings to compete with passive investing and robo-advice, so if they’re not doing it, it’s a bit short-sighted.”

Both firms have form on asset integration. Standard Life bought fellow Scottish asset manager Ignis in 2014 and went on to merge away 12 funds. Aberdeen purchased Scottish Widows Investment Partnership from Lloyds Banking Group in 2013, merging or rebranding numerous strategies.

However, neither takeover resulted in material cost reductions on merged portfolios.

Fundhouse managing director Rory Maguire said it was difficult to predict whether cost savings would ever be passed on.

“In the end, fund managers cut costs when they are under fee pressure, not necessarily when their cost base decreases.

“So, should their aggregate costs reduce as a joined up firm – yes. Will these be passed to clients?  Probably only if they are under fee pressure which is unrelenting,” he said.

Others have also pointed to regulatory pressure from the FCA, which was critical of a lack of competition on fees in its recent asset management market study interim report.

"I would imagine the interests of shareholders are uppermost in both boardrooms. But ultimately I would expect that some of these savings will be passed on to clients because of the changing regulatory and competition pressure," said Rayner Spencer Mills Research director Ken Rayner.

But Graham Bentley, managing director of consultancy gbi2, said: "It's a sad fact that deals like this are often focussed on accessing 'new' markets and institutional buyers - where margins have thinned. Retail is often not so high on the agenda, particularly on single strategy products."

Mr Bentley said the opportunity may instead lie in a new product offering.

"Given the inhouse talent these two businesses have, one can imagine a new range of actively managed inhouse FoFs, aggressively priced around the 35-40bps mark."

While investors contemplate the potential for fee cuts from the future entity, unitholders must also confront potential disruption in the short term. Mr Maguire warned that the shake-up could be significant.