UK - HSBC Actuaries and Consultants has accused competitors of launching manager-of-manager products as a cynical ploy to "boost margins".
HSBC senior investment consultant John Finch spoke out after Aon Asset Management’s head of institutional business, Tommy Garvey, admitted that providing a multi-manager product was cheaper than stock-picking individual fund managers for schemes.
Garvey – speaking at Threadneedle Investments’ investment conference – said: “Investment consulting is a very low margin business and a modest number of basis points makes a big difference.”
Garvey told delegates that research by Watson Wyatt showed consultants received approximately £30,000 or 1.5 basis points in fees from a typical £200m scheme, whereas fund managers were paid £540,000 or 27bp and brokers received 15bp or £300,000.
But Finch said that while he had no problem with standalone manager-of-managers, it was “simply wrong” for consultants to sell their own investment products to boost their margins.
Finch said that rather than making investment manager decisions for schemes, consultants should focus on offering independent advice to help schemes make the right asset allocation decisions.
Finch ridiculed Aon’s strategy. He said: “Those consultants have a good story, but so is Harry Potter or The Lord of the Rings.
“Manager-of-managers does not help small clients, who get hurt by the investment strategy call in these products.
“Small clients do not realise just how important the strategy call is and that getting this wrong costs them more than the fund manager choice.”
But Garvey claimed stock selection was more important than asset allocation in producing “superior returns”.
He added that manager-of-manager products allowed schemes to access specialist managers unavailable to them otherwise.
“Consultants that offer manager-of-managers products do so because they are frustrated by the restrictions facing smaller clients.
“Consultants want to be measured and seen to add value.”
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