Fund fees double dipping from investor returns
A former UBS portfolio manager has criticised active funds management fees as akin to paying for a meal in a restaurant and then having to pay extra for making a reservation, using the services of a waiter or paying for a third party review in the local newspaper.
StockSpot founder Chris Brycki said that many funds management fees cannot be justified and have eaten away at investment returns — and the cost of investing had not changed in the past 20 years.
Brycki said that a study of 497 managed funds found the average management costs to be 1.9 per cent per year before any other fees were applied. This had not changed markedly since 1990 when total assets under management were $250 million, through to today when total assets under management are $2.1 trillion.
He also claimed that 45 per cent of fund performance has been paid away in management fees since 2007 as a result of the average Australian share fund returning 2.3 per cent per year for the last five years but also charging 1.9 per cent in management fees.
Brycki also criticised advice fees related to managed funds, labelling Initial Advice Fees as "like buying The Good Food Guide for restaurant reviews" and Ongoing Advice Fees as "paying The Good Food Guide another fee every time you visited one of the restaurants they reviewed".
However he said investors should use a fee-for-service model of advice where fees were transparent and upfront and not tied up with investment products.
Brycki said that StockSpot would become a distribution point for exchange traded fund (ETF) products, with the company offering model portfolios of ETFs across a series of asset classes based on risk tolerances of investors.
He stated that the business was still working on how it could offer the ETFs under a ‘manager of managers' approach, teamed with the advice needed to ensure investors were placed in the right strategy.
"We will either use a managed discretionary account model with some level of advice or use a non-unitised managed investment scheme model and offer general advice," Brycki said.
While Brycki said advice would be a component of the offering it would be primarily a direct distribution vehicle and not offer holistic advice with investment, administration and management fees to be no more than 100 basis points.
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