I like language, me. We can be creative with it. My favourite example is in the film The Usual Suspects, where Kevin Spacey’s Verbal Kint weaves found words around him into an incredible act of cinematic deceit which nearly didn’t get made because “you can’t lie to the audience.”
Oh yes, you can.
Such a lie, or creative misuse, has been perpetrated on the Great British Investing Public for some time. It’s a masterpiece of prestidigitation, worthy of a Kint.
And this word is ‘institutional’.
For years, the fund management industry, and sections of the ‘discount broker’ platform industry, sought to assure investors they were no mugs. No manky old retail funds for you, no sir. Only fresh, shiny institutional funds; the ones that institutions would buy. You are not an institution, are you, Mr Client? No? Well, step right up. This is how you get the good stuff.
The trouble was, all that had changed from the standard retail class was that the initial charge was knocked off. The fund itself had an identical retail annual management charge to the version you might get off the shelf, as it were. Now, getting rid of initial charges is good. But we should not confuse that with institutional pricing.
In case anyone’s new, true institutional units or share classes are often called ‘X’ classes, because it sounds cool. They carry very, very low AMCs, sometimes as low as a few basis points for certain funds, and are often used as the basis for bespoke deals with very high minimum sizes.
So institutional classes are a world away from 150 basis points share classes for a typical actively managed equity fund. They are just as far away from a 75bps clean share class. Or a 65bps SUPERCLEAN™share class. None of these have anything to do with institutional pricing, and every time we say they do, a fairy dies. That’s a fact.
The real question is – why can’t platforms access institutional funds? With aggregation and disaggregation happening at the platform end, is this just a scale thing? Is it the nature of advisory business? Platforms which hold their own discretionary permissions such as Fusion Wealth and Parmenion boast of being able to aggregate and access those share classes. Why can’t others?
We spend a long time – me especially – obsessing about 10 basis points on a SUPERCLEAN™ deal or 5bps on platform charging. But the answer to reforming the total cost of ownership radically is right there. 50bps off, at least, for everyone. Now that would be both super, and clean.
There are, no doubt, many excellent reasons why this cannot be done, all of which are made up by the people who don’t want to sell their funds cheaply. I understand that, but as platforms hit scale the time has surely come to tip the balance away from the guys with the posh lobbies and attractive receptionists, to the enormous numbers of advisers and investors putting their hard-earned into an environment which was always meant to access institutional rates.
This isn’t hard. It’s just us, doing stuff. If we want to, we could do this, and it would make a huge difference.
Mark Polson is principal of The Lang Cat