Portfolio management firms working for investment funds have dropped their investment advisory fees for the second year running.
Average investment advisory fees have dropped by 13% over the past two years, according to analysis of “confidential” fee schedules by Fitz Partners.
Investment advisory fees cover asset allocation and stock selection, and are usually paid out of the funds’ management fees, which are publicly quoted.
The publicly quoted management fees were in the past few years falling while the confidential investment advisory fees were still rising, Fitz Partners said.
This was until last year when a downward trend began in the overall level of investment advisory fees.
Overall, the average investment advisory fee has fallen by 9% from 0.393% to 0.358% in the last 12 months.
Over the last two years, investment advisory fees have dropped by a significant 13% while “gross” management fees (including distribution fees) have come down by 19.4% since 2015.
For equity funds in all sectors of equities, the share of management fee paid for investment advisory has increased by 27% over the last five years as the “quoted” level of gross management fee charged by funds has been receding at a quicker pace than some of its internal parts, Fitz Partners found. Therefore, the remaining revenue or margin received by fund houses from management fees, after any investment advisory and distribution fees, has been dramatically reduced.
Hugues Gillibert, chief executive of Fitz Partners, said: “Although we are seeing a definite decrease of investment advisory fee levels, this reduction is still slower than that of quoted management fees.
“The difference in both reduction rates reflects, on one hand, the greater pressure on publicly quoted fees coming from investors and distributors, but on the other hand, a lack of elasticity when it comes to the pricing of funds’ investment advisory function be it from resisting internal teams on which their remuneration depends or pressure from static internal transfer pricing rules.”
The findings are in the latest edition of Fitz Partners’ ‘Investment advisory fee benchmarking report’.
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