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Topics: trail commission| fund managers| ETF| fund platform| Skandia| Terry Smith
Terry Smith, the City veteran and founder of low cost fund management group Fundsmith, has attacked platforms in the UK for adding to the overall cost of investing in funds.
Smith - who has launched his own equity fund which is listed on Skandia's platform - said fees on funds in the UK were being inflated by pressure from platforms.
He said: "Fund management fees are too high in the UK. One of the reasons is the advent of fund platforms.
"The platforms get their revenue from trail fees paid from a proportion of the funds' management fees. They therefore have a vested interest in management fees remaining high enough to pay their trail fees."
Smith said the need to pay trail fees to platforms meant fund managers had to charge enough to cover their own costs and profit margins, plus the trail fees to the platforms, keeping costs high.
He said: "The platforms are adding to costs not reducing them."
Smith has launched a number of attacks since launching his low cost firm. He has already been involved in a public row with ETF providers after claiming the vehicles were the next mis-selling scandal waiting to happen.
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When he speaks - pay attention.
As far as I’m concerned Terry Smith is a true guru. His recent speech to the World Traders was in my view spot on. With regards to funds, at the moment he may have a point. However there are a lot of fund managers who charge no less for clients going direct. Moreover I think perhaps he has not addressed the following points: 1. Platforms save fund managers money by not having to have such large call centres or administration departments as platforms do this for them. 2. Platforms help both clients and advisers. For example there is no longer a need to invest your ISA with one fund manager. 3. Platforms help advisers (and therefore the client) by facilitating consolidated valuations, administration and providing analysis’s facilities. I think Terry needs to realise that a great deal of retail advice is dispensed by smaller firms who don’t have the facilities which perhaps he takes for granted. This doesn’t mean that they are necessarily more expensive. Finally he perhaps hasn’t looked forward to the RDR when the charges and costs he refers to will be considerably abated. PS. If his fund is on the Skandia platform, I can’t find it.
Posted by: Harry Katz
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Its not just the platforms
I think the IFA community are also taking advantage of platforms by charging double or even triple the traditional trail percentage. In the pre platform days it was traditionally 0.5% built into the AMC, what is happening now is IFA's are charging between 1% & 2% trail with little extra work and the clients ends up with TER's approaching 3%.
Posted by: new model adviser