Advisers should be pressing the discretionary fund managers (DFMs) they work with for lower charges, according to Charlie Parker, managing director of investment house Albemarle Street Partners.
Albemarle Street began life as a consultancy firm working with advisers, but now also runs a discretionary fund management business of its own.
Mr Parker warned advisers were "overpaying" their DFMs, and often legacy clients were getting a worse deal than new ones.
He said: “It is a feature of the DFM market that at some of the larger and more long-established firms, the older clients are paying a higher fee than the clients that walk in the door today.
"A lot of that is because these businesses have higher cost bases, with legacy technology and investment managers on old style remuneration, that means they have legacy cost bases.
"In a world after Mifid where there is more cost transparency for clients, and more cost pressure for advisers, in that environment I think advisers should be pressuring DFMs more on fees.”
He said Albemarle had “three or four” advice firms to which it provides DFM services, but was keen to expand to more.
He said: “I am very confident we are competitive on fees, I won’t discuss the fee level and I won’t discuss the clients we have, but I would say we don’t want to be massive, we are targeting providing DFM services to maybe 10 to 15 advice firms, and to be bespoke to them, it’s not about off-the-shelf solutions.”
He said he is targeting advisers who have assets under management of £60m or above, as he believes this is the size at which an advice firm needs to consider outsourcing.
The Mifid rules that were introduced at the beginning of last year have made it mandatory for advisers to break down costs for their clients periodically in the interest of greater transparency and value for money.
The regulator has also been keen for more cost transparency in asset management as well as other areas in financial services.
In June it was urged to crack down harder on the so-called 'loyalty penalty', which sees older clients get a worse deal than newer ones, when the Competitions and Market Authority stated the loyalty penalty continued to be an "issue of great concern" and stressed it remained committed to tackling the problem.
Minesh Patel, an adviser at EA Financial Solutions in London, said: “I haven’t noticed any particular fall in DFM fees over the years. But I do think the greater transparency around fees has led to me as an adviser challenging the DFMs more.
"I think when a client sees that the DFM is providing the investment management they wonder what the adviser is doing for the fee, and challenging the DFM is part of what we do.”
david.thorpe@ft.com
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