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Multi-manager view – Nigel Speirs

Demand for multi manager products from the public is very high. It is a concept that is easily understood and popular. The principle concern is cost. Multi manager clearly adds another layer of cost, so the payback has to be able to justify this.

Distribution through bond wrappers creates an unacceptable level of cost in my view. The product ends up carrying a bond wrapper charge, typically 1.5-2 per cent a year plus the annual management charge of the fund, typically 0.75 per cent plus the underlying cost of the funds at a further 1 per cent. This can combine to create a cost of around 4 per cent a year. It is questionable whether any tax advantages can outweigh these costs. Naturally, bonds have a significant role to play in tax planning, particularly for inheritance tax purposes.

In most cases, our preferred vehicle is the Oeic itself,providing the lowest-cost basis for this distribution and providing a multi-manager offering at a more acceptable rate of 2.5 per cent a year. At this level, trail commission to the IFA is payable.

The majority of IFAs appear to be selling the funds of the product providers. This is a strange decision as it does not add value to the IFA’s business. I also question how it really provides value for the client. We have requested a third party to establish a branded Oeic designed to match the risk profile of our clients. Currently, this has three sub-unds which all have independent managers over whom we have no influence but they are measured against agreed benchmarks, thus ensuring performance or replacement. This provides a better bespoke service and gives the clients comfort that underperformance against benchmarks will result in the changing of the current investment managers.

Multi-manager is a very attractive concept but if care is not taken it will be diluted by cost. The benefit has to outweigh the cost and the fewer fingers that are in the pie the better.

On a wider distribution level, I believe that customers will win in the unbundling of products that is taking place. Breaking products down into separate parts, with clear and concise charges, allows the true IFA to negotiate with different suppliers for each component.

This is where I feel the traditional insurers will feel threatened. The inefficiency that exists in the market at the current time hampers us from providing an efficient service to our customers. New entrants to the market will not carry the baggage of legacy systems and, as a result, they will be able to operate far more efficiently than the current providers.

Developing our own-branded Snowdonia product range enables us to outsource the administration of our Oeic and Sipp, as well as the investment management, to most efficient suppliers. We are therefore able to pass on the most cost effective, efficient services to our customers.

At this point, I see multi-tie as a means of inefficient product providers trying to protect their market by securing distribution through the payment of higher commission. It is difficult to see how the customer is the winner in this scenario.

Nigel Speirs is chief executive of Buckles

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