Fund groups’ use of advisory services ‘eating into margins’ as fees soar

Soaring investment advisory fees are eating into asset managers’ margins, according to research by Fitz Partners.

The fees paid to firms providing advisory services to a fund, such as asset allocation and stock selection – have increased by 17 per cent from 35 basis points to 41 basis points over the past three years, the latest edition of Fitz Partners Investment Advisory Fee Benchmarking Report shows.

Average gross management fees, including distribution fees, decreased 4 per cent from 1.06 per cent to 1.02 per cent over the same period, while the percentage of the management fees spent on investment advisory costs rose 22 per cent over the three years.

Hugues Gillibert, CEO at Fitz Partners says the research – which is based on asset managers’ confidential fee schedules – exposes the true cost of investment advisory services, adding that it is essential asset managers benchmark all components of funds management fees.

He says: “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.

“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.

Gillibert adds: “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.”