The asset management giant is passing on costs savings from funds with more than £1bn AUM to clients from 1 August. It is also rolling all charges that make up the current ongoing charges figure (OCF) into one annual charge, bar extraordinary legal and tax expenses.
The asset manager has written to clients outlining changes to its mutual fund range which see it replace most of the separate charges that would typically make up the OCF with a single annual charge.
It is also introducing discounts to the annual changes for funds with more than £1bn under management in order to pass on some of the benefits of economies of scale.
Under the new structure, once a fund has passed £1bn AUM a discount of 0.02% will be applied to the annual charge and then an additional 0.02% will be applied for every £1bn up to maximum of 0.12%.
For example, if an investor has £1,000 invested in the A share class of the M&G Global Dividend fund, managed by Stuart Rhodes, which has £2.4bn AUM, they will benefit from total of £3 savings per annum. That is £2.60 due to natural reduction in charge and further 4o pence from the discount related to the size of the fund. The annual charge will drop to 1.36% from its previous OCF of 1.66%.
For the fund’s I share class, an investor with £1,000 invested will see a saving of 0.50% per annum – 10p due to reduction in charge and 40p due to size of the fund. The I share class’s old OCF was 0.91% and new annual charge is 0.86%.
|Fund net asset value||Annual charge discount|
|More than £6bn||0.12%|
M&G global head of distribution Jonathan Willcocks told Portfolio Adviser as a result of the changes 90% of share classes will end up seeing a reduction in charges while no clients will see an increase to their annual charge.
“As a fund gets bigger, clients pay less,” said Willcocks. “The primary driver is to make charges a lot easier for our customers to understand.”
“Advisers and end consumers feel pricing pressure on total cost of ownership, but also want a much simpler charging structure.”
Could have gone further
AJ Bell head of active portfolios Ryan Hughes described the tiered pricing structure as “a smart move” but said M&G could have gone further, noting a wide spread in savings for the end investor across the range.
Hughes said: “M&G’s funds can be quite expensive compared to similar funds and this move doesn’t change that. It still has administration costs higher than the best in the industry, particularly for its larger funds where historically it hasn’t shared the efficiencies of scale with customers.”
He said the M&G Optimal Income and M&G Corporate Bond fund will see a 7 basis points drop in its annual charge, saving an investor with £10,000 in the fund £7 a year, while M&G Recovery will see its charge fall by 35 basis points, saving that same investor £35 a year.
“At its highest, the pricing change will mean a 50 basis points cut for investors, but almost half of the share classes will see no reduction or less than 10 basis points knocked off the cost, so you need to check each fund to see if you’re winning from this move,” he added.
Hughes also noted that investors need to remember that the ‘one simple fee’ isn’t quite that, as transaction charges will be levied on top.
Willcocks accepted savings vary across the range, but picked out the M&G North American Dividend fund, which has an annual charge figure of 91bps dropping to 70bps under the new structure, and the M&G Global Listed Infrastructure fund which has an OCF of 107bps falling to 85bps.
“Some funds like Optimal Income have come down a little bit basically through the tiering,” he said. “Where we recognise in other areas we want to remain competitive from a pricing perspective relative to the industry and also recognise in regional equities the price is coming down, we have [reduced the fee] more.”
‘Shaving the cost of sticking plaster while ignoring the cost of surgery’
Similarly, Gbi2 managing director Graham Bentley says while any reduction in fees is to be welcomed “this still feels rather like shaving the cost of sticking plaster while ignoring the excessive cost of surgery”.
He said the retail share classes offered direct to investors continue to charge the amount that used to be distributed as trail.
“For example, the North American Dividend institutional share class may be falling from 91bps to 70bps, but the current A class OCF is 166bps. Even the myM&G service requires direct investors to fork out 117bps for the R if they have less than £250,000 associated with the service.
“Financial Services continues to be a higher margin activity than virtually any other customer facing industry. Tesco’s margin is around 5%; the FCA tells us investment management is up to 40%, while even the average one-man-band IFA makes a margin of 43%. There’s still a long way to go to deliver value for money when returns are so low.”
List of funds in excess of £1bn AUM to which structure will apply:
– M&G Global Dividend Fund
– M&G Dividend Fund
– M&G Recovery Fund
– M&G Global Themes Fund
– M&G Global Macro Bond Fund
– M&G UK Inflation Linked Corporate Bond Fund
– M&G Global High Yield Bond Fund
– M&G Corporate Bond Fund
– M&G Optimal Income Fund
– M&G Strategic Corporate Bond Fund
– M&G Property Portfolio
– M&G Feeder Property Portfolio