Senior figures said the management fee “price war” across passively managed funds since the RDR was introduced has increased their distance from those which are actively managed, putting strain on the latter to reduce costs in order to compete.
The RDR was implemented in December 2012 to address failings across the financial sector. Amongst other measures, it banned commission payments to advisers, driving the industry towards a fee-based remuneration model.
Rob Burdett, co-head of the multi-manager team at F&C Investments, said the passive price war was likely to drive active management fees down over the coming year.
“Two years on from the RDR we have seen the management fees of passively managed funds driven lower by an ongoing price war,” he said. “We anticipate that, with the gap to active fees having therefore widened, we will see pressure on active fees this year and onwards.”
Similarly, Matthew Butcher, investment director at Dart Capital, said the focus the removal of commission has put on product and service costs will drive down active management fees.
“I think we will see a greater dispersal effect within the pricing of actively-managed funds as the market evolves into a more competitive environment,” he said. “This does not necessarily mean that all pricing will come down. In a healthy marketplace prices rise as well as fall.”
He added: “What we shouldn’t see in the future is all of our investment universe adopting an identical price point.”
“Mistake”
However, John Husselbee, head of multi-asset at Lionstrust, said the focus on pricing over value in a post-RDR world has been a “mistake”.
He added that many active managers have been too defensive over the growth of index tracking products, and have failed to see the potential advantages to their business.
“Active managers seek quality long term investors who understand the investment approach, process and style,” he said. “Active managers have in the past been frustrated with those transient investors who trade funds short term for market exposure. This can now be accessed via index trackers, leaving active managers with less short term disruption to focus on the long term.
“So, in essence, horses for courses and there is no reason why the top weight in the handicap can’t win the race.”
In December last year, the Financial Conduct Authority said the RDR has not caused any major decline in the availability of financial advice.
The first stage of the FCA’s post-implementation review into the RDR also suggested that the level of professionalism for financial advice has increased, with more advisers gaining additional qualifications and tailoring their guidance to investors’ individual needs.
