Thu, Feb 22, 2018
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

EFAMA report shows European fund managers retain 42% of total expense ratio

Friday, November 11, 2011
Opalesque Industry Update - Today shareholders have access to mutual fund expense information via point of sale documents, prospectuses, fund company websites and external data providers. While these sources allow fund shareholders to determine the total expense ratio (TER), deconstructing that ratio to fees collected by distributors, administrators and custodians, and what is retained by fund management is not possible through current disclosure.

...Data made available to Strategic Insight in the EFAMA members’ survey provides valuable information about the various components of investment management fees and the total expense ratios. Seventeen EFAMA corporate members, accounting for over EUR 1 trillion in EU-domiciled equity and bond funds as of year-end 2010, were surveyed for this report. Key findings:

  • In Europe, a retail equity fund shareholder pays about 175 basis points in average total annual expenses (reflected by the TER) and a retail bond fund shareholder pays about 117 basis points annually. 
  • TER allocations: fund managers retain 42% of TER. Through retrocessions, distributors are paid 41% of the total expense ratio. The balance of 17% is used for operating services such as custody, administration, transfer agency, etc. 
  • Management Fee allocations: Within the bank and insurance distribution channels, stock and bond fund managers retain on average 47% and 45% of annual management charges (AMC) as net investment management fees, respectively. A greater proportion, 53% and 55% respectively, is paid to distributors through retrocessions. Among survey participants, the bank and insurance distribution channels account for nearly 75% of assets. 
  • After fee retrocession to distributors, net investment management fees retained by European mutual fund managers average roughly 74 basis points (asset-weighted) among retail actively managed equity funds and 49 basis points among bond funds. 
  • Asset-weighted average net investment management fees in Europe are only about 3 basis points greater than management fees in the U.S. when excluding the three largest U.S. fund managers (managing $600 million to $1 trillion each). The influence of these mega firms distorts the composite asset-weighted results often used to compare smaller firms. Additionally, one of the managers applies an at-cost pricing model in setting fees for its fund line-up. Even when including these mega sized managers, management fees in the U.S. are approximately just 11 basis points less than net management fees in Europe. 
  • Over 50% of U.S. fund sales through Financial Advisors (FAs) were enabled by assetbased fees of 1.0-1.5% charged in addition to the funds’ TER. This is important to note when comparing European funds’ TERs to U.S. TERs and total shareholder costs. 
  • As the European fund industry expands and matures, operational efficiencies should enable the reduction of fund expenses. Such evolution could be helped through greater clarity and transparency of retained net investment management fees versus distribution/advisory charges. In particular, UCITS IV promises to facilitate scale efficiencies through cross-border mergers and master-feeder structures, although key tax barriers are yet to be addressed. Meanwhile the UK’s Retail Distribution Review (RDR), ban on commissions, and shift towards advisor charging models are prompting the creation of new lower fee funds. The RDR echoes a worldwide trend in regulatory thinking, seen in markets such as Australia, India, and the U.S., which is expected over time to influence EC level initiatives and thus affect fee trends in Europe more broadly.
The full report can be downloaded here: Source

- FG

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Art & Motion launches collectible car alternative investment vehicle[more]

    Komfie Manalo, Opalesque Asia: Luxembourg-based Art & Motion has launched a new investment vehicle dedicated to vintage cars and exceptional high-quality vehicles as this collectible market has grown exponentially the turn of the centu

  2. Opalesque Exclusive: Global Sigma captures February's long-vol trade[more]

    Bailey McCann, Opalesque New York for New Managers: Florida-based Global Sigma rode February's volatility to new highs. The firm's AGSF strategy is up +2.8 percent through February 16 and +4.2 percent YTD a

  3. Institutional Investors - Hedge funds regain their appeal for a $57 billion asset manager, Private credit strategies in stratosphere[more]

    Hedge funds regain their appeal for a $57 billion asset manager From Bloomberg.com: With volatility back on the radar, one of the Nordic region's biggest asset managers is considering relying a bit more on hedge funds to help oversee his portfolio. Mikko Mursula, the chief investment off

  4. Investing - All aboard for hedge funds as trade tide lifts shipping, Hedge funds pile into Time Warner in bet on merger success[more]

    All aboard for hedge funds as trade tide lifts shipping From Reuters.com: Forced to abandon ship after mistiming their investments five years ago, hedge funds are venturing back in a bid to profit from growing global trade flows. Around 90 percent of traded goods by volume are tran

  5. Investing - Hedge funds turn short on tech just as stock rally takes off, After biggest short, speculators slash bearish US bond bets as supply deluge looms[more]

    Hedge funds turn short on tech just as stock rally takes off From Newsmax.com: A key group of investors has just missed out on the biggest tech-stock rally since 2014. Hedge funds and other large speculators turned net short on Nasdaq 100 Index futures for the first time in 21 months, ac