US fund management fees are on the rise
US- Fund management fees in the US are on the rise, according to a study by Lipper, mutual fund information and analysis provider. Declining assets within stock funds are behind the rise in management fees says Lipper.
“Fund management fees may inherently go up as assets dip, due to the way in which fees are charged and shrinking economies of scale,” says Jeff Keil, vice president of Global Fiduciary Review for Lipper.
In the US, most investment companies employ a breakpoint technique, whereby when assets reach pre-ordained levels, the percentage taken in fees moves up or down accordingly. For example, fees may drop from 1% to 90bp to 80bp to 70bp as assets gradually increase.
“Just as investors enjoyed lower management fees when assets rose, the fees naturally elevate when assets peel back. Many investors, however, may not be aware that they are paying more, but it will certainly become more apparent over the next few months as they look into investment reports,” adds Kiel.
The study also found that the number of funds that employ performance incentive compensation for the management company is on the rise, such as employed by Fidelity. Fidelity has around 12 funds which, if beat a benchmark by a certain percentage, will receive 10-20bp more in fees.
“Performance incentive fees are a good way to align investors interests with those of the manager. Both receive profits from the maximised returns,” says Keil.
The report updates a study conducted in 2000.