6th March 2012

Schroders: Solutions in a post RDR environment

There is currently a fierce debate on how much investment products should cost. With the Retail Distribution Review (RDR) around the corner, established fund managers have started slashing their fees and many are planning to bring new low-cost funds to the market, or have already done so.

There are several main objectives of RDR:

• To remove product and provider bias (fees replace commissions)
• To unbundle charging structures
• To improve advisory professional standards
• To improve consumer choice
• To reduce headline product charges.

Under the new legislation the charge to the investor should reflect the service provided to them, meaning it will still be up to the adviser whether they charge a flat fee, hourly fee or percentage.

However, the charging structure must be shown to the client in good time before the service is provided and any costs should be clearly disclosed and explained, so that they understand the charges and the client must agree to them before a service is provided.

Performance is generally what drives sales of funds - if investors were primarily motivated by cost then fees would have already come down, but that's not the case.

The new RDR friendly funds that are being set up strip out the costs that usually bump up the TER (total expense ratio) for an active fund - including 50 basis points in annual commission for the financial adviser, and 25-35 basis points paid to platforms for hosting the funds.

That still leaves a small premium on existing active funds. For example Schroders' UK Alpha Plus Fund, run by Richard Buxton, has a TER of 1.5%, which is more than a low cost fund. However, investors pay this small premium to get access to Buxton's renowned stockpicking skills.

What are Schroders' doing to prepare for RDR?

Schroders have recently launched a range of innovative new products with active management and low fees to help both clients and IFAs with their post-RDR offerings. We believe that actively managed funds with strong asset allocation processes are a great alternative to passive funds which simply allocate assets according to size and are destined to underperform.

Schroders low cost range

Currently available in the low fee range are Schroder UK Core Fund, Schroder QEP Global Core Fund and Schroder Dynamic Multi-Asset Fund.

Schroder UK Core Fund is a low risk UK equity fund with a TER capped at 0.40% p.a., no initial charge, no performance fees and no exit charge. The team who manage the fund consists of Sue Noffke, Andy Simpson and Jessica Ground. The fund has a focus on strong brands and simplicity, targeting attractive net returns versus index funds and ETFs.

Schroder QEP Global Core Fund is an actively managed, low fee global equity fund, with a maximum all in fee (TER) of 0.4% p.a. The fund was originally launched in 2000 and has a proven track record of delivering consistent and repeatable outperformance. The fund is highly diversified with investment in over 500 global stocks. There is a team of 23 located in London and Sydney who are led by Justin Abercrombie who is A-rated by Citywire and has over 19 years' investment experience.

Schroder Dynamic Multi-Asset Fund aims to deliver consistent, predictable returns above inflation, investing in equities, high yield debt, commodities, emerging market debt, absolute return funds and government bonds. The TER is capped at 0.5% p.a., with no initial charge.

Johanna Kyrklund is the lead fund manager who is A-rated by Ctiywire and has over 10 years' investment experience. The fund concentrates on combining returns from different asset classes in order to identify opportunities in all market conditions, and so moves between markets at different points in the cycle.

These actively managed, low cost funds are designed to help IFAs with the changes that are on the way with the introduction of RDR. IFAs will need to re-assess their clients' needs, and concentrate on a fee-based approach where the clients can be assured they are getting value for money and reliable advice, rather than just being provided with the funds of the moment.

For more information on the funds, please visit www.schroders.com/ukadviser

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