Planners look to cut client costs
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Active managers may be amongst the first to feel the squeeze as financial planners look to reduce costs to their clients without squeezing their own margins, according to new research by Wealth Insights.
The Wealth Insights research, conducted over the past two months, has revealed a subtle shift by planners in response to greater client awareness about fees, charges and commissions.
Wealth Insights managing director Vanessa McMahon said that her company’s surveying of financial planners as well as focus groups had revealed that there had been a definite squeeze on fees generated by both the global financial crisis (GFC) and clients’ increasing awareness of how planners are remunerated.
McMahon added that the planners had responded to this by looking to reduce their costs and then pass the savings on to their clients.
“I think one of the primary results has been that planners are now less interested in actively managed funds and more attracted to the lower costs offered by indexed funds,” she said.
“The view of clients, and therefore planners, is that if the active managers didn’t see the GFC coming, then why are they worth more than indexed funds?”
She said this trend was already being manifested in levels of demand for indexed products and exchange-traded funds, which offered lower member expense ratios.
“I think the changes have been subtle but are very likely here to stay,” McMahon said. “Planners have looked at where they can save costs, and there is a real attraction to an indexed product that has an MER of, say, 30 or 40 basis points when it is compared with an actively managed product that has an MER of as much as 110 basis points.”
She said that the trend away from actively managed products was easy to understand in circumstances where the performance of many indexed products had been as good or even better than the actively managed products.
McMahon said she believed it was likely the shift away from higher cost products would ultimately impact dealer groups in the form of lower rebates.
AUTHOR
Mike Taylor
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