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Product innovation can survive auto-enrolment fee cap, says BNY Mellon’s Doyle


The UK government’s decision to impose a 0.75 per cent fee cap for those in auto-enrolment schemes from April 2015 appears to unduly restrict investment options, according to Catherine Doyle, head of defined contribution, UK at BNY Mellon Investment Management.

Doyle (pictured) believes that whilst this action is by no means a surprise, it does come at a time when DC pensions are in a considerable period of flux and may at first appear to muddy an already complicated landscape.
Doyle says: “Many in the asset management industry, including ourselves, have long argued that the cost of a scheme alone is not the right metric on which to focus. Instead, value for money would be a more meaningful measure. Given the increasing emphasis on member outcomes, a fee cap may have the effect of limiting innovation by conditioning the range of styles and asset classes used.
“However, the new cost-constrained world in which we will soon operate should benefit all parties by shifting the attention to the value and quality of the strategies employed. Those asset managers who have not typically viewed the DC market as attractive are likely to continue to channel their energies elsewhere. Others who have made DC a pivotal part of their strategy are expected to further cement their position and work around the cost constraints.
“Such active strategies as diversified growth funds are frequently used as part of a blended solution, often combined with passive equity strategies. Whilst a fee cap may mean that they account for a smaller proportion of the overall default strategy, we believe that the appeal of a disciplined investment strategy focused on capital preservation, stable growth and more predictable returns, as offered by diversified growth funds, will continue to prevail.”

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