Fees to shrink in Europe
Average gross fees are expected to decline across Europe’s asset management industry at a rate of 2% a year over the next four years, according to consultant Oliver, Wyman & Co and UBS Warburg.
At present, average fees across all asset classes in Europe are 81 basis points, ranging from 105bp in Italy and 100bp in Spain and Portugal, to 73bp in Germany and Austria.
Oliver, Wyman and UBS, however, believe that countries charging higher fees will be forced to bring them down in line with their European counterparts.
Increased globalisation of the asset management industry, harmonisation of product regulations and increased competitive intensity are given among the factors influencing a future decline in fees.
Other attributing factors are: an increased propensity to change supplier; an increased transparency; and the imposition of price caps by governments as part of their pension reforms.
By 2006 it is expected that 50% of the regional variation in fees will have been eliminated - a decline of around 2% per annum. Such a convergence will have a negative impact on revenues of e14bn in 2006.
“Switzerland and the Nordic countries are expected to see the greatest impact on institutional revenue, “ says Chris Caroe of Oliver, Wyman.
Historically, asset management margins have been supported by a shift towards equities, which pay higher fees, but as Switzerland and the Nordic countries already have a large percentage of their portfolios allocated to equities, they will not benefit. A 6% decline in institutional revenue for each of the two regions is forecast.
Regional variations can partly be explained by the differing nature of asset management in each country. Italy, Spain and Portugal, for example, are large retail markets, and retail investments have higher management fees.
On average, management fees for retail life/pensions and investment fund assets are 146bp, retail private banking 86bp and institutional assets 20bp.
Among asset classes also, there is a large variation in production fees. Fees for active management of alternative investments are highest at 250bp, compared to 75bp for real estate, 42bp for equities, 25bp for fixed-income products, 20bp for money-market assets and 7bp for passive equities.