Many fund firms are paying higher investment advisory costs at a time when their own gross fees earned from customers are shrinking, according to research.
Fees paid by funds for investment advisory services – meaning asset allocation and stock selection – have seen a 17% increase over three years, from 35 basis points (bps) to 41bps, according to Fitz Partners.
Yet over the same timeframe, average gross management fees earned by funds moved down by 4%, from 1.06% to 1.02%.
Rising investment advisory fees mean that the share of fund costs, on average, paid for investment advisory services has seen a 22% increase. The figure is 20% for specifically equity funds, according to the Fitz Partners ‘Investment advisory fee benchmarking report’.
Remaining revenue or margin received by fund houses from management fees after investment advisory and distribution fees has, “in effect, shrunk”, said Hugues Gillibert, Fitz Partners chief executive officer.
“We are seeing a further increase in one of the components of fund fees impacting funds profitability,” Gillibert said, adding that internal discussions in fund houses were becoming more focused on the issue.
“When looking at trends in investment advisory fees and management fees for UK and European cross-border funds, we can see clearly that both charges are not moving in the same direction. Over the last three years, management fees overall have gone down slightly while investment advisory fees have increased substantially.”
Gillibert added that it was “remarkable” to see that for many European asset managers, the part of management fees paid for investment advisory services has “increased substantially and has been eating into asset managers’ margins”.
Gillibert said fee benchmarking was growing in importance as a business management tool.
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