Buyers buoyed as fund firms show new flexibility on costs

Buyers buoyed as fund firms show new flexibility on costs

Fund buyers have made renewed headway in the battle to cut costs as competitive pressures force providers into a more flexible negotiating stance on fund charges.

As the industry continues to digest the FCA’s asset management market study, and amid a continued surge in interest in passive products, several selectors have pointed to a new willingness from providers to negotiate on fund fees.

Last week Baillie Gifford became the latest fund house to announce a number of fee cuts as it passed on economies of sale to investors. 

After a period of holding the line when it comes to bespoke deals, firms are also becoming more open to these arrangements, according to allocators.

Andrew Summers, Investec Wealth & Investment’s head of fund research, said that while there had been “very little scope for any negotiation” in the past, conversations on fees were now possible, in part because of downward pressure from passives and the likelihood that a low-return environment would persist in the future.

He added that competition among providers had increased, despite Brexit potentially complicating the way fund managers serve UK clients.

“There are new entrants. The number of North American, European and Asian asset managers that are setting up Ucits vehicles is quite strong and competition for assets is strong,” Mr Summers said.

‘Founder’ share classes, where asset managers offer discounted prices to those who buy a fund at launch, are also becoming more common.

Matthew Stanesby, of Close Brothers, told Investment Adviser earlier this year that he had brokered a “very healthy deal” on Schroders’ newly launched US Income Maximiser offering.

Gavin Haynes, managing director of discretionary firm Whitechurch, said: “This [increased flexibility] is particularly the case where funds are launching new propositions and looking to grow them to achieve scalability. 

“They will provide a loyalty share class for investors who are prepared to back the fund at launch.”

The shift comes despite fund flows having bounced back from a disastrous period. 

Net retail fund sales stood at £4.6bn in 2016, the lowest level since 2008, as passives and absolute return vehicles offset outflows elsewhere. But sales have rebounded in the first six months of 2017 to the tune of a record £18.4bn.

However, the jury is still out on the extent to which established fees can be haggled down. Psigma’s Rory McPherson described the process as “a slow burn”.

“Once the fee is up and running it becomes very difficult to renegotiate,” he explained.

Mr Summers cautioned that in the case of new products, wealth managers negotiating lower fees were still being pressed to provide certain commitments in return.

“Normally it is linked to some kind of assurance around how much business you can give the asset management company,” he said. 

“It’s a challenge for us: you can negotiate fees but you can’t guarantee flows, because the flows we get in will be a decision of the investment manager.