Assante explains low-cost key approach to fee cuts

(January 14, 2005) Assante’s decision to use its advisor channel to communicate fee reductions to clients has puzzled some industry watchers, considering Fidelity made a public splash when it made a similar move. But officials at Assante say that’s what the firm’s advisors wanted.

Last week, in a memo sent to advisors, Assante announced that the cost of participating in Assante Optima Strategy and Assante Artisan Portfolios would be reduced by approximately 0.35%, effective January 1, in a combination of lower management fees and operating expenses.

Assante Asset Management senior vice-president Darin Thompson says the decision not to widely publicize the cuts was made following consultations with company advisors.

“Our advisors have good relationships with their clients and we work with them very closely on this kind of announcement and find the best way possible to articulate the message to clients,” he explains. “And when it’s a good news story, they would rather do it personally with clients rather than have us go out on a mass marketing campaign.”

Thompson adds that because Assante’s client base is driven largely by referrals, advisors wanting to attract high-net-worth clients feel that mass advertising campaigns can actually serve to diminish the brand.

Stephen Clarke, Assante Asset Management’s vice-president of marketing, dismisses suggestions that the fee reductions were in response to Fidelity’s fee cuts (publicly announced in December), noting that Assante actually told advisors last summer that the cuts were coming, but couldn’t provide exact figures at the time since they were still combining the back offices of Assante with CI. (CI bought Assante in 2003).

Some analysts suggest that Assante is worried about negative feedback on the management expense ratios (MERs) on its Optima and Artisan products, which, even with the reductions, are higher than the industry average.

Rudy Luukko, investment funds editor at Morningstar Canada, says there’s really no competitive reason for Assante to publicize its fee reductions, since it would only draw attention to the fact that its MERs remain high compared to most mutual funds sold through independent advisors. “In the case of the Artisan portfolios, the MERs were mostly at 3.2% before the reductions. After factoring in the reported fee cuts, 2.86% is still pricey.”

“Dropping fees on products costing between 3% and 4% per year is not great news — it’s overdue,” adds Dan Hallett of Dan Hallett & Associates. “But, admittedly, it is a step in the right direction. The big question is: How far will this go? The answer remains to be seen, but it seems pretty logical that they’re not going to cut the management fee portion all that substantially unless they’re forced to.”

Thompson says Assante wants to be competitive on fees and is moving in that direction, hinting there could be further reductions to come later in the year and beyond. But he says Assante provides comprehensive wealth management solutions that aren’t seen in most other fund products.

“We will never be the lowest cost producer,” Thompson concedes. “But we want to be more competitive over time and I think everyone is under pressure to reduce fees at this point of time.”

Advisor reaction has been positive, Thompson says, in that the move has been widely hailed as a step in the right direction. Still, there are a few naysayers, notably Toronto-based Assante advisor John De Goey, who says the reductions are “too little, too late.” But other advisors are a bit more affirmative.

“On first blush, it is a real improvement,” says Kerin Lloyd of Assante in Whitby, Ontario, noting that both the Optima and Artisan programs have been criticized in the past for being too expensive. However, Lloyd says he has long felt that Optima is superior to other wrap programs for high-net-worth clients.

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“Now the competition is getting closer, and costs had to be reduced to ensure my ongoing commitment to the program,” he adds. “Whether the reduction is enough is another question.”

As for clients, Lloyd says he will be discussing the fee reductions during his next series of quarterly meetings over the next few weeks. “This is far too important to wait for clients to ask. In fact, they have been expecting the reduction for the past nine months or so as I told them the CI acquisition should result in major administrative expense reductions, some of which might possibly be passed on to clients.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com

(01/14/05)

Doug Watt