European equity fund costs cheapest in UK

Britain mapUK-domiciled funds with share classes that comply with the retail distribution review (RDR) and which invest in European equities are 10 basis points cheaper than funds domiciled in Luxembourg, a report says.

The Luxembourg funds have cheaper management fees but the UK funds have cheaper administration fees, which help bring down the overall operating costs and lead to a lower total expense ratio (TER) for the UK funds.

Fitz Partners, a London-based fund research company, says management fees, which the RDR focused heavily on, can be deceptive when looking at fund costs.

The average RDR-compliant share class domiciled in the UK charges a 0.10% administration fee for European equity funds, while a similar RDR share class domiciled in Luxembourg would charge 0.24%, according to Fitz Partners.

However, the Luxembourg management fee is cheaper, standing at 0.84% compared to the UK’s 0.92%.

Hugues Gillibert, chief executive officer of Fitz Partners, says: “There has been too much focus on the management fee alone recently, highlighting the change in the quoted fee following RDR or talks of all-in fees have undermined the inclusion of all operating fees in benchmarking or fund reviews.”

Funds with higher management fees can still show a lower TER and be “the best pick for investors”, Gillibert says.

The findings are in Fitz Partners semi-annual Fund Fees Review.

The question of higher business costs in Luxembourg was asked in a roundtable earlier this year. The higher costs of professionals in Luxembourg and the complexities of supporting an international funds market are part of the reason for higher costs, the panel said.

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