Fund manager fees a bit rich
Harry Liem
Fund management fees are altogether too high and in most cases should not exceed 0.75 per cent, according to one of Australia’s oldest financial services providers.
The senior partner at investment management and stock broking firm Joseph Palmer & Sons, Malcolm Palmer, said while developments in technology mean transaction costs have fallen, this hasn’t translated into a lowering in management fees.
“Funds management fees are too high right across the industry, full stop. This includes performance fees and straight management fees. Charging 1.5, 1.75 or even 1 per cent is just too high for what funds are providing,” he said.
“Given that transaction costs have gone down and, therefore, the costs of running a fund on behalf of an investor have fallen, the management fees have not.”
According to Palmer, while there may still be funds out there with reasonable fees, generally speaking, retail products remain expensive.
“Even a small portfolio of a few hundred thousand shouldn’t be charged more than 0.75 per cent as a management fee.”
While Palmer does acknowledge that fees are trending down, he believes they could be going down a lot faster.
“I’d probably compare it to stockbroking fees in the past. It was only after the deregulation of fees that set off the process of competition that fees just progressively came down and down. I think the same sort of thing should and is going to happen in funds management.”
Palmer said a significant shake out in the stock market, much like the one we’re experiencing now, should also act as a catalyst to increase competition and put pressure on fees.
“The bottom line is that it’s important to get this message out there so that in the end it becomes more economic for investors.”
Mercer senior associate Harry Liem said while smaller investors usually face higher fees, this doesn’t necessarily have to be the case.
“The market is offering room for everybody (eg, even for small passive investors), there are true index, ETFs [exchange traded funds] and index funds. Similarly, for savvy retail investors, they can do their own direct investment and use the Internet for execution … In that sense, the market is already offering ‘you get what you pay for’ in terms of solutions,” Liem said.
“If you don’t think a manager can consistently deliver, invest in a passive fund. For some of the more efficient asset classes (eg, US large caps) this is not a bad idea.”
AUTHOR
Mike Taylor
Recommended for you
AUSIEX has announced it will acquire FIIG, a specialist fixed income provider with $4.5 billion in funds under advice.
Platinum Asset Management has announced it is in discussions with a global alternatives fund manager regarding a possible merger to create an $18 billion firm.
JP Morgan Asset Management has appointed an ETF specialist from Vanguard as it seeks to expand its ETF range.
The alternative asset manager has expanded its Singapore office with a head of Asian distribution, representing a “critical step” for the Asian business, where it is seeking to launch new offerings.
