Fund groups are preparing for a price war in the first quarter of next year as they overhaul their charging structures ahead of RDR.
Asset managers will attempt to strike a balance between a poor sales environment and a wholesale move to ‘premium pricing' strategies.
These strategies would see the post-RDR world bring with it a two-tier fund pricing structure, as providers ramp up the charges on their bestselling products as well as competing to offer the cheapest funds in the low-cost space.
Simon Ellis, managing director of Legal & General Investments’ unit trust business, said he and many other big fund providers would like to raise fees and introduce premium pricing, but the reality will be an environment of falling costs.
“I think fund houses are holding back on announcing premium prices because of a combination of deteriorating sales figures across the industry and price demands from some of the larger platforms,” he said.
“I think early next year we could see a race to the bottom due to the poor sales environment.”
The latest IMA sales figures paint a picture of a very difficult market for fund providers. In August, net retail sales plunged to their lowest level since October 2008, dragged down by record outflows from the UK All Companies sector.
A key figure at one of the country’s leading asset managers, who did not want to be named, told Investment Week groups will struggle to justify raising fees on existing funds, and are instead more likely to adopt a premium pricing policy on new fund launches with specialist mandates.
Richard Romer-Lee, joint managing director of Morningstar OBSR, said he expects to see charges on funds climbing post-RDR, but investors will be willing to pay for quality.
“People think RDR will lead to lower charges for investors, and I do not necessarily see that. Managers who are very good will be able to demand a premium.
“Investors will pay more attention to what they are getting from each part of the chain, as one of the key points of the RDR is to make pricing more overt, and I fully expect to see people pay more for better quality.”
Jacqueline Lowe (pictured), head of UK wholesale at Standard Life Investments (SLI), has argued groups should only adopt premium prices for high alpha products which have limited capacity. She said hiking fees on ‘star’ manager funds just because they have a strong track record would be bad for the industry.
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