Fidelity Investments and JP Morgan Asset Management have both recently introduced variable fees into their pricing with the former basing its new fees around performance, while the latter is sharing economies of scale with investors through a variable operating expenses fee.
Barron, who joined Miton as director of investment trusts in September 2013 and was previously head of investment trusts at JPMAM, says a tiered fee is easier to work with on an investment trust.
“There’s no inflows and outflows on the investment trust side. If you’re going through a trigger on an open-ended fund is it just on that marginal money or do you have to retrospectively adjust all the fees?” Barron told Portfolio Adviser.
“An ad valorem fee is very straightforward, transparent and doesn’t link to any adverse consequences or changes in behaviour.”
The Miton Diverse Income trust has a tiered annual management charge (AMC) of 1% on assets up to £300m and then 0.8% on assets over that point.
The AMC on Miton’s other investment trusts ranges from 0.65% for the Global Opportunities trust, which is a fund of funds primarily invested in other investment trusts, to 1% on the UK Microcap trust.
AIC communications director Annabel Brodie-Smith said assets under management are more stable in closed-ended funds due to the set number of shares, which worked well with tiered fees.
However, Brodie-Smith said the fact JPMAM introduced a variable fee on its Oeic range showed it could be done on open-ended products. Last week she told Portfolio Adviser the prevalence of tiered structures on investment trusts was due to independent boards that work in the best interests of shareholders.
Tilney managing director Jason Hollands said there is rarely uniformity between the Oeics and trusts managed by the same fund groups as pricing is really only in their control for their Oeic ranges.
The Miton multi-asset range and its single-strategy funds all have AMCs of 0.75%.
“In the past, trusts were usually lower cost because they did not carry the burden of adviser commissions but this is no longer the case now that Oeics and unit trusts have had commission removed,” Hollands said.
He added that while many investment trust boards introduce tiered or reduced fees to appeal to investors, many open-ended funds take steps to deter further investments through soft closures, when funds facing capacity issues.
Charging for research
Barron defended charging investors for research costs following the implementation of Mifid II on 3 January this year.
Most large asset managers decided to absorb the cost of research when the EU directive required it to become unbundled from trading costs with Fidelity among the most recent to adopt the approach after initially planning to charge investors.
However, Miton is one of the few fund houses that will charge investors a fee for research.
Barron said that research fee varies from fund to fund. “As a general observation they’d be higher in overseas markets.”
He said external research adds value, because they don’t want to operate in an “echo chamber”, and creating a standalone budget means fund managers “won’t stop consuming something that adds value”.
Barron said Miton’s open-ended funds were competitive on costs through introductory share classes with AMCs of 50bps and that intermediaries could negotiate lower fees for large-scale investments.
