'We need fund managers to make money': Advisers debate race-to-the-bottom on charges

James Calder, Research director, City Asset Management

Charging is very important to us; we would like to think that we get the best charging structure available for the fund with which we invest.

However, in this race to the floor we tend to forget that we want the fund managers we invest with to be around in a few years’ time, so we need them to make money. There are margins and then there are margins, but there is a cost involved in running a fund and ultimately you would like to see the fund management group being remunerated at a reasonable level for the job that they do.

You have to look at what types of companies are willing to do these sorts of deals for mass market distribution. I would say that if you’ve got a quality or premium product, why would you as an asset manager go through one of these large distributors and give your product away for nothing?

Advisers debate race-to-the-bottom on fund charges

These companies look like they’re trying to get assets under management or asset growth at any cost, but what you’ll find is that those that have a superior product are not likely to go down this route. Why should they give their product away for, say, 40 basis points? It’s not in their best interests.

I will challenge fund managers we invest with to make sure we get the best terms possible, but I’m aware that they are running a business and there has to be enough in it so that they’re not running at a loss. I’m not all for high fees, I’m all for very low fees, but I think what some of the bigger distributors out there are saying is that, ‘yes, we can give you distribution, but on our terms’, resembles the supermarkets versus Heinz Baked Beans battle.

While some will say clients are getting a better deal because funds are cheaper, you have to remember that cheap is not necessarily best.

Darius McDermott, Managing director, Chelsea Financial Services

I’m not saying we wouldn’t promote something that somebody else has cheaper – I appreciate bigger distributors will get cheaper prices than Chelsea – but if managers offer funds exclusively, relationships will suffer.

For example, if a firm we have supported launches a quality fund, but only offers it to Hargreaves Lansdown, that would be very difficult to deal with. Simply put, it would be very hard for us to maintain a good relationship with a group if they give their premium product to someone else exclusively – that’s just a fact and I’m happy going on the record saying that.

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