I have been amazed to see recent suggestions that the future price of fund management should be fixed, with the same annual management charge on commission free funds paid by all platforms and distributors.
Fund management companies are commercial suppliers of a service and therefore in competition.
Any suggestion that an industry should ignore the opportunity to negotiate the best price for clients, and instead agree a cosy norm for prices, is obscene and quite possibly illegal. It is certainly not in the interests of retail investors.
A single fixed price would undoubtedly increase costs for investors. A single AMC would need to be fixed at the lowest common denominator – a level that made it still marginally profitable for the fund manager to deal with the most inefficient, useless and tiny institution.
At Tesco the prices are almost always better than a small convenience store. That is because Tesco has better negotiating power over suppliers and exercises it mercilessly, because Tesco deals in big quantities, modern technology and the best resources.
For convenience, go to the local convenience store and pay more. To save money, reap the benefits of a supermarket’s negotiating power. Imagine a scenario where Tesco could not negotiate prices, because all prices had been fixed. There would be outrage.
Companies like ourselves have been at the forefront of negotiating. Today, there are very few initial charges on funds because we helped get them removed.
Arguing for better deals has also allowed us to rebate part of the annual management charge to clients. Our stance of public dislike for performance charges has stunted the proliferation of such charges. We can and do make a difference on charges.
Those who suggest a single annual management charge should apply across the entire retail market are therefore ignoring the need for a competitive market in self-interest. It is probably no coincidence that they tend to be small platforms with little negotiating power. Their argument is that one annual management charge would make it a bit easier for the platform industry to transfer client investments around.
The platform industry is paid to think up answers to questions like efficient portability. We should focus on what we can achieve for the client, not what makes it easy for ourselves. Far too many financial products and services have been designed around industry rather than clients.
We will seek the best price for clients that we possibly can on commission free funds. We care not what the rest of the industry wants to do. Anyone who suggests that the prices should be fixed across the market is wrong, acting in their own interests rather than those of clients and walking dangerously close to the legal line of promoting anti-competitive practices.
Are we all going to accept the price of commission-free fund management will be 0.75 per cent forever? We certainly do not.
The beneficial consequences of an expanding market, scale, technology improvements and the retail distribution review must include lower costs to investors over time. We are off to negotiate.
Ian Gorham is chief executive at Hargreaves Lansdown