Fund research firm Fitz Partners found average investment advisory fees, those paid for managing funds including asset allocation and stock selection, increased by 17% over the last three years, from 35 basis points to 41bps.
However, at the same time average gross management fees, including distribution fees, dipped from 1.06% to 1.02%.
“This means asset manager margins, which is the management fee minus advisory costs, have been contracting,” Hugues Gillibert, chief executive at Fitz Partners, told Expert Investor.
The Investment Advisory Fee Benchmarking Report , also found on average the share of management fee paid for investment advisory increased by 22% over the three years. For equity funds the increase was 20%.
Fitz Partners, which quizzed 16 cross-border asset management firms on the remuneration they are paying their fund managers and analysts, said this meant the remaining revenue or margin received by fund houses from management fees after investment advisory and distribution fees has in effect shrunk.
Close monitoring of bundled fees has therefore become essential, he added.
“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. This trend is visible across the board, with pretty much all asset managers being affected.”
It’s not immediately clear why fund manager remuneration has increased so much while asset managers have been forced to cut fees at the same time due to increasing competition from passive funds.
It certainly can’t be due to their overall performance. Over the past three years, most fund managers have consistently underperformed their benchmarks after costs.
