Mannix: Row over fees is counterproductive

The current commotion over fees in the fund management industry is a distraction that prevents investors from seeing the bigger picture, according to Dan Mannix, head of business development at RWC.

Last week, SCM Private’s Alan Miller spoke to FE Trustnet about his True and Fair campaign, which calls for greater transparency of charges. Miller said that the total expense ratio used by the majority of fund houses was "a complete and utter nonsense" as it isn’t a total number and doesn’t include factors such as dealing charges. He also said the system was so complicated that even some of the fund managers couldn’t explain it.

This followed calls from Fidelity to create an industry-standard fees system, after research showed evidence of what it called “Ryanair-style” hidden charges.

Mannix, however, believes this obsession with fees is detracting from what is really important.

"We would argue the debate is becoming skewed," he said. “You need to look at performance net of fees. If you hold a badly performing fund that costs only 30 basis points then you still wouldn’t be getting value, while if you hold a really good multi-manager fund, which will typically have higher charges, you will be doing alright."

"In order to provide access to the best managers, it wouldn’t be cost efficient if we could only charge 20 to 30 basis points."

Mannix says the type of investor drawn to the more expensive hedge funds demonstrates the muted importance of charges compared with performance.

"These funds typically charge a lot more, but tend to attract the most sophisticated investors because they assess value net of fees," he continued. "The investors that go for these funds tend to be a lot more active and will speak to the fund managers about their duration and what risks they are willing to take on, and they align interests."

According to Mannix, there are even circumstances in which low fees can act as a drag on total returns – he thinks that if charges are low this can encourage mass inflows, which can harm the agility of the fund.

"It’s extraordinary that the issues of performance fees and capacity management aren’t linked more," he exclaimed.

"Capacity is the variable here, it is not something that is infinite and some of the more active managers rely heavily on liquidity. Many fund groups are criticised for running too many funds that are too small but often the optimum size is only slightly larger than a few hundred million pounds."

Nick Blake, head of retail at Vanguard, thinks transparency is important, but he believes the TER is adequate and argues that disclosing all the information can do more harm than good.

"We call for better disclosure, not just more. If you just dump absolutely all the information on investors it can be counterproductive. We do call for more information but it needs to be actionable and meaningful. For example many firms quote the AMC when there’s no excuse for not quoting the TER. At Vanguard we make sure the AMC is the same as the TER."

"People say we need to see the portfolio turnover ratios for example – the problem is this is only half the information, people need the trading costs if they want to do anything. You would only know this through the NAV."

"It’s like sunburn – you know it’s hot, but you only care about how hot it is when you’ve got a sore neck."

He finished by saying: "There is no real evidence of groups being underhand. If you take a look at the prospectus or accounts you can generally find all this information; although having said that, it should really be on their websites."