The Struggle is Real: How Asset Managers are Coping With Fee Pressure

What strategies are firms using to compete in the race to zero? TheStruggleisReal:HowAssetManagersareCoping With Fee Pressure Custody and Fund Services The asset management industry continues to struggle with the increasing pressure on fees from investors with fees falling by approximately 5% annually for most asset classes and segments, according to Casey Quirk by Deloitte. This has been largely driven by the shift to passive funds, which have seen their assets more than double since 2010 and in 2018 accounted for 22% of the US fund market, according to the Investment Company Institute. At the same time, the industry has faced mounting fee pressure from regulators. A number of new rules have been enacted around the globe to increase transparency on the cost associated with investing in funds. Asset managers have taken a number of measures to cope with this pressure, such as introducing new fee structures, looking for new sources of revenue, and expanding their product suites. Each coping mechanism presents challenges, which should be considered before implementation. New Fee Structures, New Challenges Beyond simply cutting fees, some managers have turned to new fee structures to make their funds more attractive. Some have instituted unitized structures, where the fees are fixed, as opposed to traditional fund fees that rise or fall depending on the growth of the fund. Another approach is breakpoint fees, where the investors are given incremental fee discounts when their investments reach prescribed thresholds. Finally, some managers have implemented performance-based fees, such as fulcrum fees, that increase or decrease based on the fund’s performance against a benchmark. “Performance-based fees are complex and investors don’t necessarily understand or trust them yet. Communications need to be clear, especially around how the fee is calculated.” Charlie Rizzo COO Americas & EMEA, Global Head of Fund Administration, Head of US Transfer Agency, CFO of John Hancock Funds