About six months ago, I wrote a piece highlighting the benefits of investing globally with specific references to the asset managers that can be viewed here. Well a few weeks ago, I went to London for a mini-conference and sat down with several of these European-listed firms (some we own and some we don’t) to get an update on business trends and to continue to build our relationships. Given the location of the conference, a big focus was the recently implemented U.K. Retail Distribution Review (RDR), and how it is impacting different business models (advisors, fund managers, fund distributors). Sound familiar?
The U.K. is in the midst of implementing changes to how advisors/brokers are compensated for the services they provide to their clients with the goal of increasing transparency and eliminating any selling bias tied to trailing commissions. This will be a great case study for us in Canada as we prepare for changes that the Canadian Securities Administrators are considering over the coming months and years.
Without going into too much detail (for fear of putting everyone to sleep), RDR has focused on unbundling the selling commission from the management fee. It also encourages advisors to move to a fee-based platform (by banning trailing commissions to advisors or fund platforms), requiring advance disclosure of their fee schedule and thereby improving the transparency for the client.
So, instead of the fund company collecting 2.5% from the client and then paying the advisor/distributor, the client will now pay 125 basis points to the fund company. Advisors will need to put in place up-front charges in agreement with their clients for the advice they provide.
So what have the early conclusions been in the U.K.?
What we heard most was that this will harm small retail clients and likely lead to many of them not being able to afford professional advice.
Fund companies and distributors expect further consolidation in both the manufacturing and distribution space, and especially among advisors, given that scale will be even more important.
Another takeaway is that advisors/distributors are consolidating their purchases to top-performing funds and to top- performing fund companies. This is something we have been saying for a long time at Cambridge: If you generate good performance, fees are a secondary consideration.
The bottom line: It is still early days in the roll-out of this new reform in the U.K.; however, it is an issue that we will monitor at Cambridge. This is by no means the end of the actively managed mutual fund. In fact, Jupiter Fund Management is a company we own and they are one of the largest fund managers in the U.K. They, much like CI Investments does in Canada, offer investors top-performing funds in many categories with very competitive fees. At Cambridge, we hope to grow through our focus on downside protection, and by aligning ourselves with client needs by being very significant owners of our own funds. Stay tuned for further updates on this widely discussed topic.
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