March 4, 2019

Monday Morning Memo: New Fee Models May Become a Competitive Edge for Fund Promoters   

by Detlef Glow.

The European asset management industry had a rather rough start in 2019. In regard to this, it is not surprising there is a lot of discussion around current sales trends. From my perspective, these discussions may lead in the wrong direction since sales trends are often driven by the respective market environment and, therefore, are not under the control of the fund promoters.

That said, there are topics which can make a difference between the single fund promoters and, therefore, drive sales. One of these topics is the discussion about fees and expenses. Some asset managers complain about increasing regulatory burdens and the resultant increasing costs which lead to lower profits, as not all costs can be passed on to investors. Some large and well-established asset managers have reviewed their current pricing models and, as a result, are willing to test new ones. In more detail, this means these fund promoters are about to roll out funds with a very low base fee and a performance fee, which will remunerate the value added by the asset manager if the respective funds beat their benchmark; i.e. the fund promoter will only generate a significant income if the funds deliver a value-added compared to passive products for the investor.

From my point of view, these new models are a clear commitment of the respective asset managers to their active management approaches since they will only earn money if their funds deliver superior returns. I personally like the fact these models are breaking up the current system in which the investor has to pay high fees regardless of the results their funds deliver. In other words, one could say these new models, depending on the terms and conditions applied, align the interests of investors with the interests of the asset managers. This should help the industry to regain trust from investors and, therefore, help the respective fund promoters with their sales efforts.

The views expressed are the views of the author, not necessarily those of Lipper or Refinitiv.

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