Fees paid to portfolio managers have fallen by 5% over the past year according to research of confidential fee schedules for funds domiciled in the UK, Luxembourg and Ireland.
It is the first fall in investment advisory fees that Fitz Partners has noted in the three years since the firm launched its ‘Investment advisory fee benchmarking report’.
Investment advisory fees, which relate to stock selection and asset allocation, were previously rising while overall management fees were falling.
Hugues Gillibert, Fitz Partners chief executive, said: “A substantial part of a fund management fee consists of the cost of investment advisory or portfolio management and the level of this specific cost impacts their revenues substantially.”
Overall, average investment advisory fees have fallen by 5% from 41 basis points (bps) to 39 bps in the last 12 months.
However, the fee level still shows an 11% increase from their 2015 levels of 35 bps.
“Gross” management fees, which includes distribution fees, have come down by 18% since 2015, yet the share of management fee paid for investment advisory in equity funds has increased by 10% over the past four years, Fitz Partners said.
“We would have expected the reduction of the investment advisory fee component to happen earlier and be more in sync with the overall downward trend seen in management fee levels,” said Gillibert.
Explanations for why this has not happened include a “lack of elasticity” when it comes to pricing of the investment advisory function due to internal teams on which their remuneration depends, or the strong bargaining power of sub-advisors.
“From discussions with clients, we know that fund houses are becoming more focused on these internal fees and that in-depth fee reviews are carried out more regularly,” Gillibert added.
Fitz Partners’ study of fees involved 15 fund houses and 959 products with 4,900 share classes. Assets under management in the products amounted to $837.2 billion.
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