Fee wars and discounts on clean classes in focus of Cerulli, Fitz Partners

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Cerulli Associate’s latest European research points to ‘fee wars’ having broken out into the open in the actively managed space, while UK based Fitz Partners has highlighted significant discounts being made available via clean share classes put in place after the country’s Retail Distribution Review – with both sets of research suggesting a significant shift is occurring in the charges applied by active managers to their European region customers.

The latest The Cerulli Edge – Europe Edition highlights that price cuts across index funds and ETFs have led to “massive inflows into passive strategies”. However, having cut this ‘fat’, the industry focus is now turning to active management, according to Angelos Gousios, director of European retail research at Cerulli. Passive fees are not capable of falling further from current levels of around 5-6 bps because “running and trading investment funds costs money…even a cheap tracker fund has dealing costs”, Gousis said.

The research and consulting company now sees more attention being paid to how funds are managed, with indications of an increase in the number of actively managed funds with fees less than 100 bps.  Recent launches of funds with lower fees linked to performance stand as “the beginning of a fightback for flows among active managers.”

Managers are also lowering fees for early investors, as well as discounted share prices for wealth manager and distributor clients. Cheaper smart beta strategies are also putting pressure on active managers to cut fees.

Meanwhile, analysis by Fitz Partners, the fund research company based in London, based on the latest edition of the UK Fund Charges database, suggest that investors have been enjoying significant discounts in the so-called Ongoing Charges Figure (OCF) as a result of clean share classes available in the wake of the UK’s Retail Distribution Review.

Discounts noted at providers such as Baillie Gifford and Old Mutual compared to pre-RDR charges are over 50%, with an overall average discount on clean class OCFs around 44%.

Hugues Gillibert, Fitz Partners CEO said: “In the final fund market remedies published by the Financial Conduct Authority (FCA), it was announced that asset managers will be able to move existing investors from legacy pre-RDR share classes into discounted clean classes and therefore benefit from lower fund fees.”

“On average the discount enjoyed by investors invested into clean classes has been about 44% but as the table below shows, some asset managers have been further discounting their total expenses often by substantially lowering their management fees and keeping other expenses such as administration fees low. As Fitz Partners also classifies all share classes for European cross-border funds, we were able to estimate the average level of discount on OCFs for clean classes in Europe as 40%. This level of rebate is slightly lower than what we experience in the UK but we would expect to see this discount grow with the steady increase in the number of further discounted clean classes in Europe, so-called ‘super-clean’ classes.”

The tables below show the top 5 fund promoters offering the largest discounts in management fees or OCFs for funds domiciled in the UK and investing in equities.