The latest report from IC Select has found that both fiduciary management fees and investment management fees in the UK have fallen significantly over the past six years.
The report shows that base fees have fallen by between 10% and 28% over the past six years, while investment fees have fallen by 38%. Overall, median fees for fiduciary management have declined by 30%.
IC Select said that 80% of the fall in base fees happened between 2017 and 2019 and over 60% of the fall in median investment fees happened in the last two years.
When examined in more detail, IC Select said that there are different drivers for each decline. It pointed out that in fiduciary management, a single provider is awarded the mandate to act as both an investment consultant to a pension fund and as the manager of its assets.
The model has become an increasingly popular alternative to having a separate investment consultant and asset manager, particularly among smaller schemes, it said.
The latest report draws on analyses since 2017, as well as IC Select’s recent survey with fiduciary managers including Aon, BlackRock, Brightwell, Cardano, Charles Stanley, GSAM, LGIM, Mercer, Russell Investments, Schroders Solutions, SEI, Van Lanschot Kempen and WTW.
IC Select director and head of research Anne-Marie Gillon said that while in recent years, the fall in the cost of fiduciary management has been quite dramatic, it is important to put that in context.
She said the decline in base fees owes much to a period of intense competition between fiduciary managers, which has now come to an end. She added that the more recent slump in investment fees is in part a function of market conditions.
“We expect to see fees rise once more as markets recover their poise and managers look to invest in more expensive markets. Nevertheless, the essential attractions of fiduciary management – time and cost savings for trustees – continue to make a compelling case for this approach,” Gillon noted.
Dan Melley, UK head of Mercer’s investment business, said that fee pressure has been a theme across the pension investment landscape over the past few years and this has come at the same time as a significant fall in asset values.
He said: “At Mercer, we have switched to tiered fee scales as a means of managing both our cost basis, as well as mitigating price increases for clients if market values rebound.”
Samora Stephenson, head of fiduciary manager oversight at Hymans Robertson, said the fall in fees was driven by the Competition and Markets Authority (CMA) Order which successfully stimulated competition and drove down prices.
However, he said that over the last year, this trend started to break down and in some cases “go into reverse with prices rising again”.
Stephenson pointed out that fiduciary managers’ revenue is linked to the value of assets and the huge fall in government bond prices since the start of 2022 has meant that lots of fiduciary managers have seen the revenue they receive fall significantly.
Coupled with rising staff costs some fiduciary managers have been seeking to raise the percentage base fees they charge.
Stephenson said: “While we recognise the current twin pressures on fiduciary managers of rising costs and falling revenue, we have been advising our clients that any request from a fiduciary manager to increase percentage fees should be considered carefully on a case-by-case basis.”
He added that any increase which gets agreed now should reflect the value added by the fiduciary manager and be structured in a way that it does not significantly increase the cost in the future if asset prices rebound.