Portfolio management involves three cost elements:
- Fowler Drew fee
- A set of ‘platform’ charges
- The costs of products used as portfolio building blocks.
New clients can expect all-in costs between 0.70% and 1.10%.
Third-party investment costs
Fowler Drew acts as an intermediary between our clients and the financial markets – as agent not principal. We do not hold client money. Assets are held in clients’ names on an independent ‘platform’ providing custody and transaction functions, as recommended by us. Clients have a direct relationship with the platform with limited powers for us to operate their accounts. We minimise costs by recommending a platform that provides the most appropriate scale of charges for our clients, including the facility to group members of a family. Platform charges are applied by client but also by type of account or tax-favoured ‘wrapper’, such as SIPP and ISA, or taxable General Investment Account. Platform costs mainly vary between clients as a function of the total amount. This is because the fee scales are partly fixed and partly asset-based: the larger the portfolio the lower the percentage rate. To a lesser extent they vary with the mix of accounts (some, eg pensions, carrying higher charges).
+ Product costs
We select the lowest-cost means of implementing our allocations to the systematic risk and return features of the required asset types (or market within an asset class):
- risk free assets (cash and index linked gilts matched to the duration of the cash flows) and
- globally-diversified equity market index trackers for each market or region we allocate to at any time.
Because these exposures are dynamic (varying with the client’s time horizons) and carry different costs, these ‘product’ costs will vary at different stages of a plan, independently of market movements.
= Total third-party costs
Based on the factors causing third-party costs at any time to vary client to client, across our business they range between:
- 0.13% pa (larger accounts and/or more risk free holdings) and
- 0.30% pa (smaller accounts, all in equities).
Since 2018 it has been an EU requirement for managers to disclose total investment costs to all clients. It makes costs for disaggregated firms like us (using platforms and external products) comparable with vertically-integrated firms like private-client stockbrokers, banks and boutique managers with their own products or offering segregated portfolios of either funds or securities.
Our all-in costs
In 2021 Fowler Drew clients’ all-in costs averaged 0.68%.
Research of other managers’ cost disclosures suggests the range amongst our competitors by broadly comparable size of portfolio is 1% to 2.5%. Competitor cost comparisons are not like-for-like in terms of scope of service:
- None offers fully-customised goal-based portfolios with quantified outcomes and can measure (by modelling) progress towards those outcomes, including resource requirements and confidence levels
- Few if any genuinely integrate continuous financial planning with the management of the portfolio or can demonstrate a formal, mathematical link between portfolio and plan.
- Competitor costs at the high end might be explained by either expensive underlying investment holdings or high management charges at the firm level.