Retail investors are paying fees to fund management companies that are highly competitive when compared with subscription charges for Spotify and similar digital entertainment platforms, a European funds industry group says.
A ten-year subscription to Spotify Premium could cost over €1,000, while fund fees that include an advice cost would register less than €200, according to the European Fund and Asset Management Association (Efama).
The findings are in an Efama report that shows, on average, 41% of fees paid to the fund covers fund management expenses, 38% goes to distributors (including for advice), and 21% covers downstream fund administration, depositary, tax and other expenses.
Efama calculated that an investment of €1,000 made at the end of 2009 in an actively managed retail equity Ucits fund and in an index-tracking equity Ucits, led to an average net value of €2,530 after ten years. The investor would only have paid €76 to the fund management company, €76 to the distributor and €43 to the other service providers, over ten years.
Meanwhile, a subscription to a typical digital music, podcast, or video service costs at least €9.99 per month, or €1,199 for ten years, Efama said.
The Efama Market Insight report is called ‘Perspective on the costs of Ucits” and uses data from Fitz Partners, a fund research company. The report covers funds whose distribution and advice costs are bundled in the fee paid by retail investors to fund managers before being retroceded to the fund distributors.
Within this model, mass retail investors are paying “small amounts in absolute terms to fund management companies to get a reasonable return on their long-term investment, and to distributors to have access to professional financial advice”, said Efama.
In countries that have unbundled advice fees from fund fees, Efama said there was no guarantee that the cost of advice would fall and the group said it cautioned the European Commission against any hasty decision to dismantle the existing EU distribution model, without making a careful and holistic assessment of what impacts an inducement ban could have.
Tanguy van de Werve, Efama director general, said: “This report also shows that investment funds for which the costs of distribution and advice are bundled in the fee paid to fund managers are not necessarily more expensive than funds for which such costs are externalised. We therefore advise the Commission to exercise caution when considering possible changes to the existing EU distribution models and stress the necessity for a holistic assessment of all considered options.”
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