Fund Management
Wealth Managers Not Passing On Fee Discounts-Report
New research from Fitzrovia, a London-based consultancy, shows that fund/wealth managers are not passing on fee discounts as the size of fun...
New research from Fitzrovia, a London-based consultancy, shows that fund/wealth managers are not passing on fee discounts as the size of funds grow.
The report examines the Luxembourg funds industry, the world's primary centre for marketing funds across national borders, and shows that among actively managed equity funds, 14 per cent have under $ 5 million in assets with an average Total Expense Ratios of 3.55 per cent, while 11 per cent have over $ 250 million in assets, with an average TER of 1.67 per cent
The report highlights the average annual management fees for these funds. The three smallest ranges of funds (with assets under $ 25 million) have higher average management fees than the largest range (with assets over $ 250 million) by between 5 and 9 basis points.
However, the differences in average management fees between all of the ranges only amount to 10 basis points, while the difference in average TERs amount to 188 basis points.
In addition, the differences between average management fees for different asset size ranges do not uniformly decline as assets increase. For example, funds between $10 million and $25 million have the same average management fee as those between $100 million and $250 million, and funds between $25 million and $50 million have a lower average management fee (albeit by only 1 basis point) than funds over $250 million.
The Fitzrovia report found that, despite the encouraging signs for a fall in average TERs, the data reveals a clearer increase in underlying average management fees.
The consultancy believes the US mechanism of tiered management charges, or “breakpoints”, could be considered. In this way economies of scale would be passed on to investors for the core cost of investment management and not just for the fixed non-management expenses, said Fitzrovia.
The report also identifies that following five years in the rise of the number of Luxembourg promoters there has been two years of falling numbers, reflecting consolidation in the industry. At the same time, the market share for the largest thirty promoters throughout this period has remained virtually unchanged (nearly 75 per cent in terms of assets under management, but less than 45 per cent by number of funds).
