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Advisers need to negotiate lower fees

Fund management fees are too high and advisers should be negotiating lower fees for their clients, MyFiduciary principal Chris Douglas says.

Tuesday, August 13th 2019, 6:00AM 6 Comments

New Zealanders have been negotiating for lower interest rates on their home loans for years and now it is time advisers take the same tack and ask for lower fund management fees for their clients.

Douglas, speaking at the Meet the Managers Roadshow last week, said fund management fees are too high and it's time to bring more wholesale pricing to retail products.

“Lower fees are our most certain source of alpha,” he said

He says there needs to be more talk about fees. Some financial planning groups are quite focussed on fees, but overall he feels people are relatively ambivalent towards the subject.

Interestingly, Financial Markets Authority chief executive Rob Everrett talked about fees last week too. He says, referring specifically to KiwiSaver, "we were banging on about the fees," but people "weren’t really paying regular attention".

"We have tried to really rub people’s noses in it," he says, and the regulator was pleased to see some lower-fee-model schemes challenging the incumbents.

Douglas isn't advocating for passive management; MyFiduciary uses both active and passive funds.

Any adviser with $5 million in funds under management with a manager should be able to negotiate lower fees. If they don't have that they should be considering combining with other advisers and using their collective buying power.

Douglas says advisers should be able to negotiate at least a 25 basis point discount on fund management fees. It's a competitive market with plenty of new entrants, especially from Australia.

Some of these managers have been known to cut their fees by more than half to get a foothold in the New Zealand market.

Douglas says the sector which is paying above the odds for fund management fees is the charitable trusts: "They are paying way too much," Douglas says.

While advisers can negotiate for lower fees, Douglas is pleased to see some managers are reducing their costs. Recently Daintree, an Australian manager offering fixed interest funds, has cut fees and Harbour Asset Management reduced fees on two of its most popular funds. 

The fee for both Harbour NZ Corporate Bond Fund and Harbour NZ Equity Advanced Beta Fund are now 0.45% pa, including management and other costs, excluding GST.

"These funds are two of our most cost-effective solutions. The Advanced Beta Fund draws on the detailed quantitative research, specifically factor analysis, which underpins all Harbour’s equity funds. The Corporate Bond Fund draws on the credit research which underpins our Core Fixed Interest and Income Funds."

"We have been working on reducing outsourced costs and, as these funds have grown, the fixed costs are also spread across higher FUM. We want to share the improvement in costs with our investors," Harbour says.

In a low return environment (especially fixed interest) a cut in management fees can make a significant difference to returns, Douglas says.

"Overall fees are too high," he says. "If I'm paying 1% for a balanced fund, I'm paying far too much for that."

 

Tags: Chris Douglas Daintree fees FMA funds management Harbour Asset Management KiwiSaver MyFiduciary Rob Everett

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Comments from our readers

On 13 August 2019 at 10:03 am Another AFA said:
I wholeheartedly agree. Fund Managers have been too greedy when it comes to retail pricing, especially for investments held via a platform. In my opinion, platforms should be pushing Managers to have one wholesale price for all advisers via the platform rather than than Advisers having to 'band together' for discounts. Some Managers do, but not many, so let me thank AMP Capital and OneAnswer for leading the way with platform discounts. Of course, Managers such as Simplicity don't need to offer discounts, they are already market leaders in terms of pricing.
On 13 August 2019 at 3:43 pm Scott Alman, Managing Director, Consilium said:
Couldn’t agree more Chris. Consilium is a champion of lower fees and use our scale to negotiate on behalf of our clients. On Consilium Wrap we offer 14 different fund manager rebates to anyone using our platform. In fact, the two funds mentioned, Harbour NZ Corporate Bond Fund and Harbour NZ Equity Advanced Beta Fund are two of the 14 funds. We also offer a facility for advisers to negotiate their own rates exclusive to their firm.
On 13 August 2019 at 6:40 pm Walter Wallcarpet said:
Whilst those who add value to the clients experience need to be paid a fair wage for a fair service, often there are other snouts in the trough clipping the ticket unreasonably. Focus on this and maybe consumers would see a positive difference
On 13 August 2019 at 6:43 pm Sam Handwich said:
Agree with you Chris, but I prefer the Smartshares NZ Core fund (managed by Dimensional) in the smart beta/systematic space. The fee is only 0.05% p.a. more than the Harbour Advanced Beta fund but the Smartshares fund has outperformed that fund by 1.5% p.a. net of fees over the last 3 years.

And yes, Smartshares offers volume discounts/rebates to advisers.
On 14 August 2019 at 10:21 am cdouglas23 said:
Hi Sam - thanks for your comment. The quotes about Harbour's fee cut in the article were from a Harbour representative, not me!

I agree that the Smartshares NZ Core Fund is a compelling option. It stakes up very well on our Fund Fiduciary Score framework and is also a product that we use with some of our clients.

Cheers,
Chris
On 16 August 2019 at 2:32 pm Another AFA said:
@scott Alman - Scott on one hand that is great news that Consilium offer 14 fund manager discounts to all advisers using the platform (well done). On the other hand it is a sad indictment of the industry that it is only 14 (half that number is from AMP Capital). More pressure from the Platform providers would assist both the Financial Adviser to offer lower manager fees for the the benefit of the investor.

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