The average active funds in the IA UK All Companies sector could see their Ongoing Charge Figures increase by 0.25 per cent if the FCA stipulates asset managers must include transaction fees in the OCF, Fitz Partners warns.
Currently, 77 per cent of active funds in the UK All Companies sector show OCFs under 1 per cent in their clean share classes, which Fitz Partners says “some investors in the UK might now consider as a ceiling when it comes to acceptable fund charges”.
If transaction fees are added to OCFs, Fitz Partners says only 28 per cent of active funds in the sector would remain below a total fee ceiling of 1 per cent. Furthermore, if asset managers decide to keep their OCFs unchanged, they would face a cut to their management fee revenues 30 per cent, Fitz Partners says.
The FCA’s final report on its asset management market study is expected by the end of June.
However, transaction fees for UK active funds have dropped by 20 per cent since 2014 while portfolio turnover has remained fairly static, research by Fitz Partners shows.
While transaction fees have declined from 0.25 per cent to 0.2 per cent the average portfolio turnover of UK-domiciled active equity funds have fallen slightly from 59 per cent to 52 per cent in three years.
CEO Hugues Gillibert says: “We have seen a gradual disconnect between transaction fees and levels of portfolio turnover. A 20 per cent drop in transaction fees over three years, while portfolio turnover has remained relatively unchanged, is a sign of further tightening of fund costs. Although these charges are not usually disclosed to investors, they would have an impact on overall fund performance and are monitored internally by asset managers.
“When it comes to fund size, the impact on transaction fees is very real and as we see transaction fees gradually decreasing over the years, we also observe a further downward trend as funds assets under management increase.”