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Under The Influence

For some years now, I have delivered a lecture on the wealth management industry to a group of college students from America. Last week, a couple of dozen of them listened to my opinions on where wealth management was heading and why it was such a dynamic industry.

The IFA market did feature and I was surprised to be asked the extent to which the commission available to an adviser influenced the choice of funds.

I shared my experience over lunch with fellow columnist Robert Reid. His views on commission are well known. The opinion of the questioner was that the size of the commission mattered a great deal. I had to acknowledge that even if individual decisions based on commission were rarer, corporate deals delivering the advising firm added benefit could still influence choice.

I could point to the practice I had intro-duced in a number of firms of discounting all the front-end charge available in favour of a transaction commission but I had to admit that “fees” in the context of a portfolio manager were not the same as Robert’s view of fees. For the straightforward Mr Reid, a fee is based on a time charge or an agreed cost to be applied to a particular job. For portfolio managers, fees are fund-related.

These fees are little different to the trail that has now become commonplace among advisers. Portfolio managers would say their involvement with the client is continuing and their interests are aligned, in that the greater the worth of the portfolio, the higher the fee.

Advisers might claim the trail allows them to maintain a watching brief without raising additional charges on the clients. But wouldn’t a flatter fee scale be fairer in both cases? Clearly, no leadership on this issue is emerging from across the pond.

But what about markets? The central banks stayed their collective hands on interest rate rises but that was more a recognition of slowing economic activity than moderating inflationary pressures. The IMF suggested we could touch 5 per cent on the Chancellor’s measure – two and a half times the target.

The IMF’s prognosis for what UK plc is likely to achieve is also somewhat downbeat. Recession should be avoided but GDP growth of a mere 1.1 per cent is on the cards for next year. These estimates, similar to the consensus forecasts published by independent economists, are less than half Treasury estimates.

At least we have the Olympics to take our minds off investing. China is pinning a lot on these games. It can be viewed as a celebration of the economic successes achieved in little more than a generation. The authorities are hoping the event will make the world view China in a different light. What we hope is it will help maintain momentum in the Chinese economy, which is becoming increasingly important in global terms.

Brian Tora ( is principal of the Tora Partnership


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