View more on these topics

Just rewards

Funds of funds’ total expense ratios have been criticised following the publication of analysis by Lipper Fitzrovia, the well-respected research agency that has a habit of getting to the bottom of things. Lipper Fitzrovia announced that Fof Ters were, in fact, only 50 per cent more than single manager funds, not 100 per cent more (the famous double charging) that has been widely reported for many years.

Indeed, Lipper Fitzrovia went further and broke down average Ters by type of product. External (unfettered) Fofs charge 2.44 per cent on average, manager of managers charge 1.86 per cent and actively-managed single manager funds charge 1.63 per cent.

Cost was one of the reasons that multi-manager became so popular a few years back when it first took centre stage. But choosing on the basis of price is fraught with danger.

Taking the Investment Management Association’s global growth sector as a barometer of multi-manager performance, the average external Fof has outperformed the sector average by 8.64 per cent over three years to December 31, 2006 while the average Mom has underperformed the sector average by 6.1 per cent and therefore has underperformed the average external Fof by 14.74 per cent (source: Lipper Hindsight). These are after charges. You do indeed get what you pay for.

I thought it would be useful to outline where all those charges go. Here are the major costs of our Fofs:

l The IFA is paid for managing the client relationship including monitoring their situation on an ongoing basis. The IFA’s share of our annual charge is 75 basis points a year in the form of trail commission.

l The underlying fund manager is also paid. There is no doubt that the skills of good managers are worthy of reward but groups that like to charge premium prices and deliver sub-standard performance are easily found out by the Fof manager. They are typically paid somewhere near 75bps for their work although a few do warrant higher levels for extra performance. Part of the skill of a Fof is in negotiating these charges down.

l Finally, we as the Fof manager are also paid. We provide ongoing monitoring of investments, fund selection, asset allocation and the tax benefits of the Fof structure. We retain 75bps a year for these services.

The performance statistics quoted earlier demonstrate that the partnership between IFAs, underlying fund groups and Fof groups is clearly working very well. All three parties provide benefits in the value chain that connects the investor with the stockmarket. All deserve to be rewarded equally.

Jason Britton is co-fund manager with T Bailey.


Default dilemma

Why are employees being shoved into second-rate default funds in their droves?

Falcon committee will oversee Brunel Fofs

Falcon has set up a investment committee to oversee its Brunel fund of funds range to ensure their investment objectives are met, citing the furore over the Fidelity special situations split as a situation it aims to avoid.Head of investment solutions Piers Denne will chair the committee, which comprises 12 senior IFA members of the […]


Morley bond fund spans yield spreads

Morley Fund Management is offering a new bond fund that taps into the narrowing yield spreads between emerging and developed markets. It is managed by Kieran Custis and is benchmarked against the JPM GBI-EM broad diversified index. Morley says the move was prompted by research from the Emerging Markets Traders’ Association, which showed that many […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm