Price wars put focus on assets

Asset managers in Ireland and elsewhere are engaging in price wars to win large-volume business from institutional investors while also targeting retail investors by working hard to improve price transparency and online interaction.

A recent survey by UK consultancy Casey Quirk revealed that asset managers are discounting the fees they charge big investors by up to a third in a bid to gather assets at a time when regulation and competition among fund houses are making it harder to win and retain business.

Olwyn Alexander, head of asset and wealth management at PwC Ireland, confirms that discounts for key institutional clients are commonplace in every market including Ireland, the UK, the US and throughout Europe and Asia.

“Often large institutional investors will request a dedicated managed account rather than a commingled fund and they can negotiate better pricing as part of their overall package, with a bespoke mandate. The larger the amount of assets, the greater the bargaining power the investor will have on key terms such as fees, liquidity, etc.”

But price competition within the industry in general is “intense” and has also resulted in pressure from the media and retail investors for greater price transparency with regard to management fees, she adds.

“Newer ‘passive’ products like ETFs (exchange traded funds) have extremely low fee levels, and investors welcome the lower costs. There has been a lot of focus recently on the impact of management fees on the returns that investors receive, and a push by regulators and investors alike for more transparency around fees.

“This has resulted in asset managers experiencing margin compression via fee pressure.”

This, in turn, has led to the industry to consider the role of technology across their entire organisations in a bid to reduce costs.

This includes online tools to better communicate with retail investors. “Younger generations have grown up with buying online, and investments and savings will be no different,” said Ms Alexander. “’Robo’ advisors such as Nutmeg and Betterment have grown exponentially and many traditional asset managers are already investing in, or partnering with, technology solutions to reach the end investor.”

Brian Hughes, head of financial services at BDO, says that the influx of fintech firms into the asset management space has spurred traditional players to improve the “quality and flexibility of their own online offering”.

“We saw this in the banking industry where the development of online and application interfaces became a key differentiator in attracting new customers and retaining existing customers.”

Even with the strong price competition to win institutional clients, Ms Alexander says asset managers, by extension, also have a growing volume of retail investors in their sights, thanks in part to the growth of defined contribution (DC) pension schemes.

“We often have to remind ourselves that when you consider a large institutional client, often they represent a large group of retail investors, such pension or insurance entities investing on behalf of their clients,” she said. “This focus on retail investors will continue as self-directed investing through defined contribution schemes becomes adopted globally.”

The value of the Irish pensions market held by DC schemes has risen to over €40bn and now represents an almost 40 per cent share of the market.

Fiona Sweeney, head of institutional clients at Davy Asset Management, says that the growth of ARFs (approved retirement funds) within DC schemes has given rise to a greater focus on this market due to the fact that this option requires more individualized and ongoing investment advice than with the purchase of annuities, which are expensive at the moment.

There is a trend towards purchasing ARFs at present, given the low bond yields that prevail and therefore these investors are becoming an important business segment in the Irish investment marketplace,” she said.

Another trend that has been continuing apace is the internationalisation of asset management.

Mr Hughes says the asset management industry here in Ireland has been well ahead in responding to increasing global requirements.

“The nimbleness of the industry in developing new products and vehicles has ensured that Ireland has retained its prominence in the global asset management industry,” he said, citing as an example the introduction last year of the Irish Collective Asset-management Vehicle (ICAV), a flexible corporate structure for both UCITS and AIFs.

This structure has been proving attractive to US investors because it simplifies the tax treatment by allowing access to relief under US tax treaties. “Co-operation between the industry, regulators and government in maintaining Ireland’s dominant position can only be welcomed.”