A price war leading to leaner fund charges is most welcome to the retail investor. The lower costs associated with passive funds are a by-product of their precise asset-tracking approach, which in turn allows the adviser to more accurately construct and maintain portfolios with consistent risk/return characteristics.
By happy coincidence these lower costs also allow the adviser greater margin to charge fees which are appropriate for the work involved in providing a high-calibre investment service without imposing prohibitive costs on the investor.
However the servicing and dealing costs levied by platform providers have now become the more dominant element of the fee levels paid by passive investors. Further reductions by passive fund providers must be less significant in the future. Therefore should we now look to platform providers for the next significant price cut in the drive to deliver more value to the retail client?
Philip Bailey is partner of Assetfirst
Key points
Demand for passive funds is increasing and is likely to continue to do so.
The simplest solution for differentiation is to compete on price, which is precisely what has been happening in the last year or so
A price war leading to leaner fund charges is most welcome to the retail investor.
