Asset management has become less profitable as investment advisory costs rise while management fees fall, according to a new report from fund research body Fitz Partners.
According to the ‘Investment Advisory Fee Benchmarking Report’, the average advisory fee, which covers services such as asset allocation and stock selection, has risen 17% over the last three years, from 35bps to 41bps. The average management fee reduced 4% in the same period, from 106bps to 102bps.
Increased investment advisory fees mean that the share of fund costs paid for investment advisory services has increased 22%. This is impacting the profitability of fund firms.
Hugues Gillibert, CEO of Fitz Partners said: “We are seeing a further increase in one of the components of fund fees impacting fund profitability. Internal discussions in fund houses are becoming more focused.[…] Fee benchmarking is not only a question of overall level of funds cost for investors, it is also about good business practice and margin preservation.
“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.”
Gillibert recommended that close monitoring of bundled fees is especially important when advisory services are delivered outside of a fund’s domicile.
The researchers asked 16 cross-border asset management firms about their confidential fee schedules in order to compile the report.