More than half of money managers running global equity allocations have reduced the fees charged to new clients by an average 20% over the past five years, new research shows.
Conducted by Lane Clark & Peacock and covering more than 80% of U.K. institutional investment managers, the research found that competitive pressure has pushed fees down. It said 58% of global equity managers, who were surveyed for both the 2010 and 2015 research, have reduced their fees overall for new clients. Reductions were also seen in emerging market equity and diversified growth funds’ annual management fees.
LCP said that for a £50 million ($74.7 million) global unconstrained equity allocation, the 20% average reduction for those managers that reduced fees means a saving of about £58,000 per year.
However, for corporate bonds, U.K. real estate and core U.K. equity, fees have increased. The research said about 42% of U.K. core corporate bond managers increased fee rates by an average 32% — meaning a £50 million corporate bond allocation saw a fee increase of about £46,000 per year.
The research said there is a significant variation in costs, even within the same allocations. The highest fees were in private equity.
Despite some competitive pressure, the research also found some increases in fees. The estimated increase in the annual fee paid for a £50 million global equity allocation, for a manager tracking the market, was £200,000 over the five years to Dec. 31.
The research also looked at active offerings for defined contribution plans. It said while trust-based DC plans investing indirectly, via a platform, pay very little for passive index strategies, “costs can be substantial when active funds are selected.” The reason, LCP wrote, appears to be that passive is a popular strategy for DC plans, particularly if they form part of a default investment option. But for active strategies, investors might be paying up to 20 basis points per year more via a platform vs. going direct to the money manager.
