M&G, with its 190,000 direct clients, has one of the biggest books of direct retail investors. The company rolled out a low-fee online service for them.
“myM&G” service is an execution only platform i.e. a non-advised service (if clients require financial advice they must contact a financial adviser). It enables customers to switch their assets currently held in a fund to a new cheaper share class ‘R’. According to the UK asset manager, over 90% of the group’s direct customers will be able to take advantage of lower charges via this online service with immediate effect (the remaining 10% investors will not see cost reduction, because they already own the cheaper share class, or they own “passive” investments, which only have one share class).
For an actively managed equity fund, the cost will fall from 1.65% to 1.15% a year. An investor with £10,000 in the fund will save £50 a year. Bond funds will also be cheaper, undergoing a fee cut from around 1.15% to 0.9%.
“Charges made simple” …
In response to the FCA’s pressure on UK asset managers to reduce and simplify fee structures as well as increasing transparency, the fund house also said it will absorb equity research costs for its funds.
UK’s largest retail asset manager has adopted a communication focused on the simplicity of the way all-in charges are set, highlighting that clients won’t pay any entry or exit charges on top of that service. The only fees paid by investors using "myM&G" are funds’ ongoing charges and transaction fees.
To help clients better understand the cost of their investment, M&G provides a calculator tool to estimate costs in percentage and pounds including direct and indirect transaction costs.
M&G intends to contact its existing 180,000 customers over the next few months to give them the option of moving to the new service. If they do not respond, they will continue paying the higher prices. After that, myM&G will be open to new investors.
… But still room for reducing charges for investors
Well-off savers with £250,000 or more invested in M&G funds will get a further fee cut, by shifting to the ‘I’ share class, usually reserved for institutional investors such as pension funds and insurance companies. The I and R share classes are the only ones available on the platform.
Despite this initiative which puts direct customers close to a level playing field with investors buying funds through brokers, investors could still get the same funds for a cheaper annual fee elsewhere. This is because of an anomalous fee structure whereby funds sold through brokers and other firms attract lower overall fees. For example, Hargreaves Lansdown, UK’s largest broker, sells the M&G Recovery fund for 0.8% charge a year - lower than M&G’s new 1.15%.
However, these investors will pay an additional “platform charge” to Hargreaves Lansdown of up to 0.45%, depending on the amount of money invested, meaning it could prove more expensive in total. Different brokers charge different rates.
M&G uses the platform to push in-built advice multi asset solutions & provide robo-advisory like tools
Among the 50 products offered by M&G, Multi-Asset funds are put forward as “one-stop option”. Together with themes funds, emphasis is placed on Income and Growth strategies. This kind of “set-and-forget” products typically fit clients with smaller amounts to invest.
The idea of multi-asset toolbox was also adopted by Vanguard for its D2C platform through its LifeStrategy range (see DigiBook #7 article here). The main difference is that Vanguard is using low-cost passive underlying products. Hargreaves also offers all-in-one products with a multi-manager approach which wraps up strategies run by separate asset managers in a single risk-profiled fund.
Here M&G distinguishes itself by promoting its own active management funds.
For clients willing to make their own selection, M&G offers robo-advisory like features such as 24/7 service, online chat as well as education and insights material (video, short papers).
Particularly clients have access to a simplified asset allocation tool based on client’s risk appetite and investment horizon (see below).
M&G's launch of a new online service for direct customers is another step in the price war between execution-only platforms.
It is also increasing pressure on rivals to fill the advice gap left by the Retail Distribution Review (RDR). The only question after Vanguard and M&G’s move is when Jupiter and Invesco follow suit with similar measures to reduce funds charges?
Author: Eddy Arnaud - November 2017
