“Investment advisory fees up 14%” -why?

 

transparency symposium

Can someone explain what is meant by an investment advisory fee in this context? The report appears in Financial Planning Today which describes itself as

the daily news website for Financial Planners, Paraplanners and Wealth Managers.

The article doesn’t mention the customers who pay all these fees, I suppose we are not supposed to be reading this – as it might get us a bit confused – too bloody right!

As far as I can make out, the gist  is that asset managers are worried that while they are seeing their margins fall, the fees paid to the investment advisors out of a bundled annual management charge are going up.

Which begs the question – why?

The investment advisory fees are increasing not just in absolute terms (anyone taking a percentage of an increasing fund -will make more money), but also as a proportion of the annual management charge.

Just why are asset managers collecting more fees for advisers while taking less for themselves? Surely it has not just become 17% more expensive to “provide asset allocation and stock selection” advice? And anyway, isn’t that what the asset manager does? Are these investment advisers actually choosing the stocks for the fund managers? What then are fund managers- no more than custodians?

The only conclusion I can land on is that they are paying advisers for distribution. But that surely cannot be the case – wasn’t that what RDR had finally nailed?

Sorry to sound such a clod – but I really don’t get what is going on here and if anyone wants to clarify in the comments box, I’d be very grateful.

Average investment advisory fees have increased by 17% over the last three years, a new report has revealed.

The ‘Investment Advisory Fee Benchmarking Report’ by Fitz Partners, a London-based research company, found that average investment advisory fees increased from 35bps to 41bps during the past three years, a rise of 17%.

However, average gross management fees dropped by 4% from 1.06% to 1.02%.

The report by Fitz Partners also found that the share of management fee, which was covered by investment advisory fees, increased by 22% over the last three years. When equity funds are taken into account, the increase drops to 20%.

Fitz Partners’ research is based on asset managers’ confidential fee schedules and exposes the true cost of investment advisory fees, according to the firm. Advisory fees, which mainly cover asset allocation and stock selection, are usually paid out of the funds’ management fees.

web Advisory fee graph .jpg

 

Fitz Partners chief executive Hugues Gillibert 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.”

Mr 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.”

I’ll finish with an infographic you can find on the Fitz and partners website. I hope that the FCA’s disclosure committee will ensure that light is shed on this very murky subject.

Transparency uber alles!

 

Fitz.PNG

It’s oh so very complicated

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in advice gap, pensions and tagged , , , , , , , , , , . Bookmark the permalink.

2 Responses to “Investment advisory fees up 14%” -why?

  1. Lola Clarke says:

    Hi guys,

    Great article.

    I’ve not long been in the financial game myself and it’s taken me some time to get up to speed and it’s sites like yours that have inspired me to start my very own blog https://goldinvesments.tumblr.com/ and to try to and break into the industry.

    Keep up the good work :D.

    Like

  2. Lola Clarke says:

    Hi guys,

    Great article.

    I’ve not long been in the financial game myself and it’s taken me some time to get up to speed and it’s sites like yours that have inspired me to start my very own blog https://solidgoldinvesments.tumblr.com/ and to try to and break into the industry.

    Keep up the good work :D.

    Like

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