Average investment advisory fees charged by asset managers have fallen 5%, from 41 basis points (bps) to 39bps over the past 12 months, according to research by Fitz Partners.
The independent fund research company looked at asset managers’ fee schedules to reveal the cost of investment advisory fees, those paid for managing the fund, including asset allocation and stock selection.
Higher than in 2015
Despite falling over the past year, the research found investment advisory fees are still 11% higher than the 2015 level of 35bps.
However, since 2015 “gross” management fees, including distribution fees, have decreased by 18%.
Hugues Gillibert, Fitz Partners CEO, 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.
“There is a real need for asset managers to be able to review all parts of their expenses and look even more closely to the structure of their own management fees.”
Reduced margin
Meanwhile, the Investment Advisory Fee Benchmarking Report revealed that for equity funds, the share of management fee paid for investment advisory increased by 10% over the past four years.
Fitz Partners said this meant the remaining revenue or margin received by fund houses from management fees after investment advisory and distribution fees has reduced.
Gillibert added that he 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.
He said: “The timing difference could reflect a certain lack of elasticity when it comes to the pricing of funds’ investment advisory function be it from internal teams on which their remuneration depends, pressure from internal transfer pricing rules 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. Fund fees benchmarking is not only a review of the level of funds costs to investors, it is also part of good business practice and stronger governance supporting asset managers’ margin preservation efforts.”
