Commenting on the survey, author and LCP Investment Partner Mark Nicoll explained:
“The mist is clearing on investment fees and the increased level of disclosure is encouraging. However, greater transparency is needed as there are still far too few managers disclosing the level of transaction costs and this intransigence threatens the reputation of the whole industry”.
He added: “Given the large increase in fees in recent years and variation in fee rates for different mandates Trustees have the opportunity to negotiate better terms for the provision of these services.”
LCP’s data also shows that many fee structures do not align managers’ interests with their clients, as an underperforming equity manager would still have earned a sizeable fee increase over the past 5 years. “Financial incentives mean keeping a client is more important than taking risks to deliver better performance” Nicoll said.
Responses to the survey show that there is a significant variation in costs over and above the AMC across asset classes even within the same mandate, with the highest charges found in private equity.
The survey also shows that competitive pressure is having an impact on some fee levels, with 58% of equity managers having reduced their charges to new clients by as much as 20% over the past five years. For more popular asset classes such as corporate bonds on the other hand, some managers have increased their fee rates by over 30%.
For DC investments, LCP has found that although there are advantages, accessing active management of funds through an investment-only platform can lead to relatively high additional charges than when investing direct with a manager. The survey data shows that the additional cost of accessing a diversified growth fund through a platform is between 10 and 19 basis points over a direct approach.
Laura Myers, Senior Consultant at LCP commented: “Accessing active management through platforms is more expensive that investing direct with the manager. However, it is possible to negotiate fee discounts with the underlying managers, as well as the platform provider, to ensure your members get the best fee deal possible.”
The LCP investment management fees survey provides detailed information on fees paid for different asset classes and different mandate types in those asset classes.
Click here for the full survey |
