“You can sit in front of a prospective client and talk about how fantastic your research team is or how great your investment process is, but the client can’t really know the truth of that. What she or he does know is whether or not he is being treated fairly; whether the operational nature of what you do sits in their favour,” he told Portfolio Adviser.
As a case in point, Gardner said, on the fees side, the firm has been rebating trail commission to clients since 2005.
“If you are a genuine agent for your client, you can’t justify any practice where there is a clear conflict of interest. And there is a clear conflict there, because the choice was not only about investment but between an investment that pays a trail into our back pocket and one that didn’t. So, we just removed any doubt by paying that commission back to clients.”
Speculating that this could be part of the reason why so many firms ignored investment trusts, Gardner added, the downside, now, however, is that those payments are taxed as income, which wasn’t the case before.
The other area that Gardner believes is going to become an increasing point of focus for regulators is added transaction commissions.
“I think it is wrong to charge clients transaction commissions when there is any commercial profit in doing so because it has the potential to create a scenario where a firm might encourage investment managers to churn portfolios to generate additional revenues,” he said.
As a caveat, however, he said: “If it can be proved that it is a cost-only charge that is being passed on, that is a reasonable business practice, but we take the view that it is better not to charge it at all.”
