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
Grant Hackett has been promoted from CEO of Generation Life to head up the wider Generation Development Group.
Tribeca Investment Partners has made a distribution hire from Australian Ethical in a newly-created role focused on the national intermediary market.
Asset managers may be urged to diversify their product ranges, but investment executives have warned any M&A deal should avoid simply filling gaps and instead consider long-term value creation.
Specialist wealth platform provider Mason Stevens has become the latest target of an acquisition as it enters a binding agreement with a leading Sydney-based private equity firm.
