IPE Conference: Beware 'knee-jerk' reactions to fee levels
In a straw poll at this year’s IPE Conference in Berlin, around one-third of delegates said there was no need to cut asset management fees further, while another one-third said fees should be cut by more than 30%.
In response to this, Jan Straatman, global CIO at Lombard Odier IM in Switzerland, said: “This is understandable, but it is a knee-jerk reaction because there is no one-size-fits-all solution. A lot of products are way too expensive, and a lot of low-cost products could be more expensive.”
Christopher Sier, Prof of Practice at Newcastle University Business School, said: “Although we are on different sides of the fence, I violently agree with Jan – people either want to change nothing or a lot, but what we actually have to do is to understand and explain the problem to them.”
He added: “Trust is the main issue, and people do not trust or understand the establishment, and the financial service industry is considered a part of that.”
Sier, who has been looking into the cost and fee structures of investments in the UK for several years now, called on the asset management industry to become more transparent.
“Asset management is a force for good, and it can help the demographic challenge of long-term savings, but asset managers need to do better,” he said.
“They need to invest in tools to inform consumers – to explain to them what asset allocation means, for example.
“The asset management industry is highly productive and wealthy, but it has abrogated its responsibility towards the consumer.”
Ueli Mettler, a partner at Swiss consultancy c-alm, pointed out that regulators such as the Swiss OAK should not set cost limits: “If you act as a prudent investor, you should be free to choose any products you like and negotiate fees as you like – but, for this, you need all the information.
“So regulators have to create an environment where information asymmetry is not a problem any more, and, if that is achieved, market forces will decide the fee levels.”
Frits Meerdink, manager at PGGM in the Netherlands, pointed out that, from this year, transparency on cost reporting was widened in his country to include transaction costs in commingled funds.
“There should be an alignment of interest with the pension funds we serve,” he said.
“And we are checking whether there is true outperformance, an ambition the asset manager aspires to – above that, we are willing to pay performance fees.”