Average investment advisory fees increased by 17 per cent from 35bps to 41bps over the last three years whilst average gross management fees (including distribution fees) moved down by 4 per cent from 1.06 per cent to 1.02 per cent.
That’s according to the latest edition of Fitz Partners ‘Investment Advisory Fee Benchmarking Report’, which also shows that the share of management fee paid for investment advisory increased by 22 per cent over three years, and when considering equity funds, the increase is 20 per cent. Remaining revenue or margin received by fund houses from management fees after any investment advisory and distribution fees has in effect shrunk.
Hugues Gillibert (pictured), Fitz Partners Chief Executive Officer, says: “We are seeing a further increase in one of the components of fund fees impacting funds profitability. Internal discussions in fund houses are becoming more focused. Fee benchmarking is not only a question of overall level of funds costs for investors, it is also about good business practice and margin preservation.
“Whether it is for Transfer Pricing purposes when advisory services are delivered outside the funds’ domicile or for benchmarking sub-advisors fees or internal advisory teams’ costs for profitability purposes, a close monitoring of these bundled fees has become essential.
“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.”
The ‘Investment Advisory Fee Benchmarking Report’, by independent fund research company, Fitz Partners, gives a unique insight into the level of investment advisory fees charged by asset managers. Fitz Partners’ research is based on asset managers’ confidential fee schedules and exposes the true cost of investment advisory, defined as the fees paid to entities providing advisory services to the fund. Advisory fees, which mainly covers asset allocation and stock selection are usually paid out of the funds’ management fees.
Hugues Gillibert adds: “As asset managers are watching their margins ever more closely, it has become essential to benchmark all components of funds management fees. It is 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.”