On a fund with £50m under management a firm’s profits might be just 0.05% of assets, or £25,000. But because most of the costs are fixed, if the same fund rises to £20bn of assets its profits might rise to closer to 0.5% of that figure – £100m of profit.
However, in a day and age of low interest rates and poor market returns, where people are living longer and so require more money at retirement, it is unsurprising that the spotlight is being shone on the fees fund managers are taking out of clients’ investments.
In 2015, the FCA launched a Market Study of Asset Management, pointing to weak price competition in parts of the actively managed investment market, and the investigation remains ongoing.
But it seems that parts of the market are already moving to address the pricing issue, even at the expense of margins, and the initiative is being taken by the investment trust sector.
Historically, trusts were far cheaper than open-ended funds. The latter routinely charged an extra 0.75% to pass back to platforms and financial advisers, but when those rebates were outlawed with the RDR the two product types came closer into line.
But the trusts have fought back.
The first move was the widespread removal of performance fees from trust charging structures, with portfolios managed by groups such as Henderson and Martin Currie removing the fees around the time of RDR.
