Fee pressure behind 'push on ESG'

Fee pressure behind 'push on ESG'

The downward pressure on fees in the asset management space is enticing fund houses to expand their product range to include asset classes where larger fees are justified, according to research.

Figures from Alpha FMC’s Product Trends Survey, published last week (June 3), showed 60 per cent of asset managers believed there would be continued downward pressure on fees for at least the next decade while 27 per cent thought it would last three more years.

The asset management consultancy polled 17 major asset managers in February this year and found just 29 per cent of respondents anticipated fee pressure increasing on any alternative products, while a quarter agreed specialist investment approaches, such as ESG and alternatives, could command higher fees.

Asset managers thought equities in mature markets would be the asset class most likely to see a reduction in fees, followed by fixed income, multi-asset and passive funds.

The asset classes that appeared safest from fee cuts included alternatives and specialist equities.

Just last month FTAdviser reported UK asset managers were moving away from traditional asset classes when looking at product launches for this year, as responsible investing and alternative products topped the list for planned new funds.

Joe Docker, executive director at Alpha FMC, said: “It is interesting that asset managers are looking to launch products in asset classes where they see the least change of fee compression.

“Recent high profile examples of managers receiving significant management fees whilst delivering poor performance has exacerbated attention on fees. Pressure has grown for managers to better align incentives with customers and pass on economies of scale.”

Darren Cooke, chartered financial planner at Red Circle Financial Planning, said: “I’ve been saying this for a while, particularly for ESG.

“A large part of the push on ESG comes from the active managers seeking to justify their fees as they are increasingly being squeezed to lower fees in the main areas of equity fund management by the rise of passive funds.”

Scott Gallacher, chartered financial planner at Rowley Turton, agreed. He said: “The move into specialist areas may be an attempt by fund managers to preserve margins and profitability.”

Mr Gallacher added fund management costs had come under increased scrutiny over the past few years, partly due to increased transparency about those costs but also due to a low inflation, low return environment.

He added: “In simple terms, when people were making 10 per cent a year they were probably not overly concerned about the fund managers’ charges.”

But Alan Steel, of Alan Steel Asset Management, said he had “never seen investors complain” about fees charged by managers who had “delivered consistent high returns”.