June 3, 2011 6:31 pm
The upcoming ban on commission for financial advisers could have no impact on how much investors pay for their funds, a survey has suggested, as fund managers continue to demonstrate resistance to cutting their fees.
More than a third of 200 fund managers polled by Capital Spreads for the Financial Times said that annual management charges for active funds should not fall to 0.75 per cent after 2012, a level that many in the industry say is fairer for investors. At present, active funds take 1.5 per cent a year out of investors’ funds – part of which covers commission payments to financial advisers. However, the Financial Services Authority is banning commission from 2013 to make charges on investment products clearer to consumers and prevent misselling scandals.
Many advisers think that the ban should result in lower costs because active funds typically pay 0.5 per cent a year in commission to financial advisers.
But the Investment Management Association said fund managers might seek to recoup costs of distribution in other ways from 2013, which could mean maintaining present charges. Nevertheless, advisers say the tide is turning against active managers who want to keep fees high but who are not delivering outperformance to investors.
Cheaper passive funds are rising in popularity while JPMorgan Asset Management and Schroders have already cut charges on selected funds. “Active fund managers will have to
demonstrate more than they currently do that they’re adding value for the higher charges,” said Patrick Connolly at AWD Chase de Vere, the financial advisers. “We’ve already seen funds launching with lower charges and we’ll see much more of that.”
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