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Independent view – Nicholas Conyers

Any discussion between those born in Yorkshire or Scotland will include a lot of good banter. Typically, both accuse the other of, shall we say, being similar in their outlook towards their personal finances.

There is no doubt that both regions are stereotyped as being careful with cash. My personal experience is that neither is lacking in generosity, it is just that their belief in obtaining good value for money seems to be enshrined in their genes.

Another way of looking at this using current parlance is that they pay particular attention to added value, which is, of course, at the heart of our endeavours when assisting clients so that they meet their financial goals.

Recent increases in annual management charges brings the issue of costs to the forefront once again. This is, of course, in addition to the focus that will be placed on costs once the menu system is up and running. Many a debate is likely to ensue as to the most appropriate way for paying for the advice provided.

While some increase in fees can perhaps be justified on the grounds of consistently good performance, there is sometimes a hint of profiteering at investors’ expense. Long gone are the days of a 0.5 per cent AMC and escalating regulatory costs have a good deal to answer for in this respect. However, there has to be a level where charges border on the unacceptable and a recent review of an investment held by a client in a fund that has adopted a multi-manager approach confirmed this to me.

After much probing behind the quoted AMC of 1.5 per cent, I was somewhat grudgingly quoted a total expense ratio that amounted to an eye-watering 3.2 per cent. I hasten to add that we are not talking about a hedge fund. Not surprisingly, this particular fund ranks fairly lowly against its peer group in performance terms and the management group has earned more in the last 12 months than it has delivered to the client.

Following a recent marketing announcement, we now have the tantalising prospect of another multi-manager fund being offered within a bond wrapper and, as sure as night follows day, this will add yet a further layer of costs. With investment markets that could not be described as particularly buoyant at present, this could be an excellent method of inheritance tax planning or a new variation on the theme of discount bond without needing to add any trust planning.

The banks have already been given a shot across the bows by the FSA, reminding them that they need to put their houses in order when it comes to treating customers fairly.

Clearly, the recent consumer research paper on disclosure poses fund management groups the challenge of demonstrating their competitiveness. As this coincides with a lot of conversions and a move to exploit the greater potential of Ucits legislation, one questions whether the various investment groups will be able to – or be prepared to – cater for all sections of the retail market.

With depolarisation, it would seem that a relatively high percentage of products will be sold using a commission structure, without the benefit of advice, despite a greater general emphasis being placed on fee payment options and greater transparency .

For those of us firmly in the advisory sector, we need to be able to offer both a clean contract with low initial charges and no trail fees for those clients selecting the fee route and, on the other hand, a different type of share structure for those wishing to operate on a commission basis, even where commission is to be offset against fees. At present, of course, it is extremely difficult to persuade investment houses to remove trail commission where it is not required.

Management groups need to realise that it is actual returns that register with investors. If they choose to increase costs so that they are uncompetitive, then the fragile confidence that exists since the market lows of 2003 will be eroded and we shall see a return to the safety of cash.

Clients realise that every business has a cost base to control but that does not mean that they are not seeking fair value from their hard earned investments.

Nicholas Conyers is a consultant at Pearson Jones

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