He said the top two funds in each sector in terms of "money makers" overwhelmingly lead new flows because of fund selection processes that have become more and more harmonised over time.
Centralised investment processes within IFA networks and DFMs will only serve to make this trend more distinct, pushing product providers to make sure their launches truly offer something new and are not bandwagoning.
“Funds either make a lot of money or nothing. You have to have the best product in the market to have good flows. Traditionally a broad range of funds have made money but as research becomes more standardised and processes become more centralised that is changing.
“Product providers have to say ‘how are we going to differentiate this from the market’? Whether it is a manager people cannot already access, a particular skill or an investment approach,” Waterhouse explained.
Move away from one set price
He used the example of the global dividend launched for Dan Roberts when he joined Fidelity. With a trusted record in equity income and a more defensive, low beta strategy than some of his peers the firm felt this was a different proposition than those already in the market place. Launched at the end of January, the fund had £17m in AUM at the end of August.
Another outcome of distributors’ focus on top quality products will be a move away from pricing the majority of funds at 0.75% on their unbundled share classes. Some strategies which requires greater resources and input, such as those based in Asia might be priced at 0.85%, while UK equity mandates that are based in-house and cost less to run could be 0.60%.
“As an asset manager you have to demonstrate value rather than just price,” Waterhouse said, “Ultimately people pay for alpha. We should be in a position to charge more than we have done for the right type of products.
He admitted that re-rating legacy products to charge existing investors more would not be a welcome strategy and so he expects the move to charge more for quality will occur gradually with the launch of new products.
If people invest at one price, they are not going to want to subsequently pay more for the same fund, he concluded.
