Most low-cost active products are not 'fit for purpose'


Advisers seeking low cost active management solutions are not being offered products that are fit for purpose.

BMO Global Asset Management (GAM) launched its own low cost multi-asset active management solution last November in response to adviser demand.

Rob Thorpe, head of distribution, UK intermediary at BMO GAM, said: "Over last few years there has been a growing demand for lower cost solutions from advisers. There are a number of applications, in terms of financial planning, which are cost constrained.

"So it is very difficult when you add a platform fee and associated costs to provide a low cost solution, especially from an active manager.

"[We] have seen a development of low cost solutions which are passive orientated and many advisers, who have over many years promoted the advantages of active management, have little or no choice to offer something that is truly active in cost constrained environments.

"So we observed is a gap for a low cost active solution. There are many low cost solutions that say they are active, in terms of asset allocation, but what they are buying are passive solutions."

Mr Thorpe added that although there clients can get diversification from those solutions across different indices, however they are being allocated to something that’s linked to an index.

And when an investor buys an index they get exposure to the winners and losers of that index.

"With active management you don’t have to do that. You are hopefully buying the winners," Mr Thorpe added.

According to Mr Thorpe, BMO GAM is able to offer the active management service at low cost because of the scale of the business and its "multiple capabilities across multiple asset classes".

To hear more about Mr Thorpe's views on how, many managers have failed to deliver a lot of alpha, click here.