First and foremost, how much lower can active management fees go from here? Second, why did Franklin Templeton cut the fees on only three of its funds and, more generally, why did it feel the need to do so in the first place?
The first question is arguably the easiest to answer: given that, at an AMC of 45 basis points, the fees on the Franklin UK Rising Dividends Fund, Franklin UK Equity Income Fund and Franklin UK Opportunities Fund are pretty close to those charged by the more expensive passive funds, the answer most likely is: not much further.
That, was very much the view of Jake Moeller, head of UK & Ireland Research at Lipper, who told Portfolio Adviser that a move like this is a clear indicator that the sector is coming to the end of the fee compression cycle that, arguably, started as far back as 2009.
Of course, it is fair to say that in the low return world in which we currently find ourselves, every basis point of return is invaluable and, as a result, fees take up a greater proportion of the total return, and the lower one’s fees the better trimmed a fund’s sails are.
However, it is also fair to say that, as fees have come down, the marginal impact of a fee reduction decreases.
As Tim Cockerill, investment director at Rowan Dartington pointed out, cost is fairly low down on his list of priorities when it comes to selecting a fund, as he is far more concerned with performance and his choice of fund is unlikely to be swayed by a cost difference of 10 basis points, especially if he believes the marginally more expensive fund is going to perform better.
That said, there is a case to be made that for the adviser making use of a managed portfolio solution, cost is a far bigger deal, and it is part of the reason Franklin Templeton decided to cut the fees on these three funds in particular.
According to Alex Brotherston, head of UK retail sales at the firm, there is no plan to roll out this price cut across any of the other funds in the Franklin Templeton suite because the other funds (which remain on an OCF of 0.75%) offer higher alpha strategies that fit better outside of the core of a portfolio.
“This decision comes on the back of many conversations with advisers who are looking at these funds to play a cornerstone role within portfolios, a part increasingly played by passive funds.
