Once a money manager is hired, the firm — and its new client — rarely revisit the topic of fees. This harms not only the asset owner, but also, potentially, the manager.
Earlier this year, Chestnut Advisory Group interviewed more than 70 asset allocators — all chief investment officers — by phone. We asked them how informed they are about the fees they pay asset managers and what role, if any, fees play in their decision-making process.
We found that, once hired, asset managers go silent on fees; most investors also lose focus on this important topic — to the point that many investors with whom we spoke weren't even sure what their general fee level or structure was for most of their managers. This ignorance about the fees investors pay is compounded by the fact most asset managers do not regularly talk about fees with their clients once hired, leaving the asset manager vulnerable to a misunderstanding that can lead to termination.
While this reticence to directly address such a hot topic is emotionally understandable, from a business point of view it leaves the asset manager vulnerable. Without guidance, an investor can start looking into fees in a light that may make an asset manager look bad. This lack of communication also leaves the investor vulnerable to a sudden scramble for information.
It's up to each asset manager to explain its value proposition to investors. We recommend asset managers have this discussion at least once a year with each client.