Nest and Stonefish agree to share charges knowledge with advisers

Nest and Stonefish Consulting have offered to share expertise on how to scrutinise fund manager charges at a session at the Corporate Adviser Summit last week, Pam Atherton writes. 

Both Nest CIO, Mark Fawcett andChris Sier of Stonefish Consulting pledged to offer their investment fee knowledge with advisers during a panel debate on DC investment strategies.

When asked by Neil Latham of Punter Southall whether he would be willing to share with advisers the questions Nest puts to fund managers, in light of the fact that advisers already use Nest data flow information as a standard template, Fawcett said: “We are absolutely happy to work with advisers on this. So why wouldn’t we share our knowledge. I will have to come back on how best to do that but I am absolutely up for that.”

Sier said he was also willing to supply his template of FOI questions that he sent to fund managers for advisers to use.

When asked what proportion of Nest’s 0.3 per cent AMC was for investment management charges, Fawcett said he could not disclose this, but that the AMC included administration costs. Fawcett said that fund managers had to be as transparent as possible if they did business with Nest. “We’re able to get that information, when others cannot. Turnover on our equity portfolio is about 10 per cent pa. We will disclose what the average transaction costs will be for the year, but I cannot disclose what our fund managers have given us in confidence or jeopardise a relationship which works well for our members.”

Fawcett said: “We look at stock lending, custody charges and the like. I am not saying we have it 100 per cent. There are potentially some dark arts out there. But for any fund manager to work with us they have to be as transparent as possible,” said Fawcett. “We have just been working out how to communicate the transaction costs. 

Asked what percentage of the 30bps Nest charge was the asset management charge, Fawcett said: “If I told people the number I don’t think I would get such a good deal for the members. It is an ongoing discussion within Nest and I think at some point in the future we will disclose it.”

Fawcett said he was not under a non-disclosure obligation with regard to telling what the charges are. 

When Aviva head of policy, John Lawson, asked what Nest paid for its foreign exchange, Fawcett said he did not know and would have to “check with the office.” But he added that with only £30m under management at present, of which only a small part was overseas equities, in a fund with very low portfolio turnover, it was not a critical issue for Nest at present. 

Sier said it was impossible to know whether one was getting a good deal on charges if fund managers refused to disclose details of their costs: “If you are paying 0.3 per cent, they’re still making a lot of cream out of that.” He added that advisers and pension funds should not be pressured into not disclosing the deals they did with fund managers, saying: ”If a second-hand car dealer says this is a today-only deal, you walk away”.

Fawcett said: “On average, active fund managers underperform the market, so you’ve got to be pretty confident to pay 2, 3, or 4 per cent for active management. We favour passive management because it delivers better member outcomes.”

Elsewhere in the debate, Nita Tinn, a director at Independent Trustee Services said a charge cap would not stifle innovation around default strategies.

Sier said members wanted something they could understand, which did exactly what it says on the tin and to be treated honestly. “The industry must think about member outcomes, not esoteric discussions about different asset classes. The innovation I want is where my downside risk is shared by the fund manager and the provider communicates with me in a way that suits me, namely via my mobile.”

Fawcett said that to narrow the range of possible outcomes, Nest used diversification strategies and dynamic asset allocation. He lambasted high churn rates on institutional pension funds, saying that a fund with a 25 to 30 year time horizon had to take a long term view.

Tinn called for a seamless transition from the accumulation to decumulation for those wishing to go into drawdown in retirement.

Speaking from the floor Henry Tapper complained that there were no benchmarks for identifying well executed funds and ridiculed the OFT for saying that high portfolio churn was not necessarily bad, providing it could be proved good for members. “

Stonefish’s guidance on fund management charges will be published through the Corporate Adviser website shortly.