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Investment houses paying 17% more for advice

5 September 2017

Cost to funds of advice services around asset allocation and stock selection has jumped over the last three years, with average investment advisory fees increasing by 17% from 35bps to 41bps, according to the latest edition of Fitz Partners Investment Advisory Fee Benchmarking Report.

The average gross management fees (including distribution fees) moved down by 4% from 1.06% to 1.02%,

The Fitz Partners report undertaken across 16 asset managers, and 966 European funds, cross border and UK domiciled, worth US$775.6bn, seeks to identify the true cost of investment advisory, which it defines as the fees paid to entities providing advisory services to the fund.

Advisory fees mainly cover asset allocation and stock selection and are usually paid out of the funds’ management fees.

The Report also shows the share of management fee paid for investment advisory increased by 22% over three years and when considering equity funds, the increase is 20%.

Hence, remaining revenue or margin received by fund houses from management fees after any investment advisory and distribution fees has in effect shrunk.

Hugues Gillibert, Fitz Partners chief executive officer, said: “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 research for the Investment Advisory Fee Benchmarking Report, is based on asset managers’ confidential fee schedules.

Gillibert added: “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.”

 

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