What about fees?
In the wake of the UK’s RDR, the immediate pressure was clearly on asset managers to remove any commission payments.
At the same time, the third-party platforms in the UK were unable to cross-subsidise low-value clients with high-value clients, so there has been quite a rise in costs for low-value clients held on third-party platforms. This created a space for advisers to raise ongoing fees.
There was a survey recently that put the average annual cost of advice at about 2.56%.
The asset management sector has been under severe pressure and we expect it to continue through the value chain, to platforms and advisers, which is why you are seeing consolidation. As transparency is introduced across Europe, we can expect the same to happen.
The passive argument helps maintain margin pressure with instances in core passive funds offering 0.1% or even 0%.
We expect the real pressure to hit those guys who are not genuinely alpha. Because of that, what you will end up with is something that has been going on the institutional markets for more than 20 years.
What you find is that the core expression of a strategic asset allocation is expressed passively, at the lowest possible cost. Then, alpha generation is done as satellites to strategy, but they are given much longer-term time horizons to deliver the alpha.
The Institute of Money Advisers recently produced its 2015 asset management review, which shows there has been significant growth in the use of passives in the UK.
It is still tiny in comparison to the use of active management here.
I expect the use of passives to continue to grow, and that will continue to apply margin pressure, but particularly for those people who are not genuine alpha managers.
What is your plan for the rest of the year?
My focus has been on bedding down the Luxembourg funds we launched.
We may expand that range where we see demand but, again, working with specific distributors. We are not trying to overextend ourselves.
My priority is to ensure the strategy we started on 1 January 2015 starts to produce the benefits we expect it to.