Focus on fees has unintended impact on clients, warns Potter

Having said that, Mr Stocks added: "I’m particularly sensitive in the lower risk areas of portfolios given that we’d expect costs to be a larger proportion of any growth.”

Mr Potter does use passive investment products in some of the strategies he manages, but this depends on the investment strategy. 

Mr Potter and his team manage about £3bn of assets in a range of multi-manager funds. He said he believes that funds can get too big to be a good investment, and that the rise of passive investing is leading to reduced margins for managers, and this is leading to merger and acquisitions activity in the asset management industry. 

This will, he believes, lead to lots of funds merging, creating a smaller number of bigger funds, and thus achieving poor results because the merged fund is too big.

He said this is the second unintended consequence of the rise of passive investment, which he said was also driven by the change in regulation forcing fees downwards.

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