Swedish managers fear cost moves
Swedish investment managers are up in arms at government proposals which could force them to make daily cost reports to clients and also see their charges slashed by up to 75%.
And fears are also being expressed that the state appointed insurance operation, the PPM (Premie Pensions Myndigheten), which will begin next year administering individual social security payments to mutual funds for 4.5m Swedes, could buckle under the burden of such complex reforms.
The suggestions put before parliament by Swedish finance minister Erik Åbrink call for mutual fund managers wanting to handle over Skr36bn ($4.6bn) with annual top-up contributions of Skr14bn, to declare in krone terms how much they will debit for asset management fees, client services and marketing.
It follows criticism of the proposed complex system, which it has been suggested permits managers to charge exorbitant fees against minimal administration and marketing costs, because the money will come directly from government.
However, fund managers point out that such daily reporting could double present administration requirements, pushing up costs at a time when ceiling figures of 0.3% for fees are being bandied around against the current norm of around 1.5%.
Peter Friberg, managing director at mutual fund managers Hagströmer and Qviberg Fonder, says the proposal is too complicated in terms of administration and disclosure, and in fact will raise costs all round.
If a mutual fund manager's fees are higher than the suggested 0.3% ceiling, a 'kickback' will be paid to the PPM to reimburse investors. However, the new reporting procedure will inevitably put enormous pressure on the PPM, because in effect they will be responsible for the overall daily accounting calculations for clients."
Therefore, he says, with Swedes able to switch between 10 mutual funds of their choice on a daily basis, administration and information costs will rocket and be snatched straight back from their investments.
"The paradox is that these costs will probably be greater than the original fees, so Åbrink's product will be more expensive and complex than the existing system," Friberg says.
Jan Bernhard Waage, partner at Wassum Consulting believes the government claim of excessive management fees is a fallacy: "If you compare them to the UK where charges are also around 1.5% but entrance and exit fees can be as high as 5%, then the fees are actually quite cheap."
The proposals could lead to chaos, as fund managers and the PPM are forc-ed to completely change computer systems and accounting structures.
Leana Schelin, spokesperson at the PPM said: "It is too early to assess what the impacts of such changes will be, but we are looking closely at the proposals being put forward." Hugh Wheelan"