Fund servicing and ad-hoc charges have increased over the past few years, causing challenges for investors and asset owners across the globe, a report has found.
Global investment consultancy, bfinance's Investors Costs and Fees Report 2023 found that investors are grappling with cost management challenges amid persistent inflation, heightened ESG requirements and regulatory burdens.
Collating data from nearly 200 asset owners in 22 countries, the report found decreases in management fees but increases in other costs, including ‘ad-hoc’ asset manager charges and fund servicing.
It also found the challenges of non-transparency and non-comparability remained widespread across many cost components and asset classes, with many end investors stating they felt dissatisfied.
The study found:
- Some 34 per cent of investors reported an increase in fund servicing costs over the past three years.
- Regarding management fees, 46 per cent said these fees have become lower, however, nearly one in four have experienced an increase in ad-hoc expenses.
- ESG-related costs, and how to charge for them, are widely cited pressure points amongst investors.
- Other investors have observed higher ‘market impact’ costs following a period of market volatility and periodic fixed-income liquidity constraints.
- Only 27 per cent of investors said they were happy with the transparency of market impact costs and 45 per cent for trading/brokerage expenses.
- However, 83 per cent were satisfied with the transparency of management fees.
The study suggested: "In a rising cost climate, with high-interest rates, increased pressure for ESG compliance, and continuing market volatility, investors are pressured to achieve better ‘value for money’ in many areas without compromising on strategic goals."
Kathryn Saklatvala, head of investment content at bfinance and report co-author, said: “The data and anecdotal comments throughout this report really illustrate the extent to which investors are now facing cost-additive pressures.
"This is a real contrast versus the previous decade, when low interest rates, downward pressure on management fees and improved transparency helped considerably to reduce like-for-like costs for investors.”
Duncan Higgs, managing director and head of portfolio solutions at bfinance, said: “This report illustrates how far the investment industry still has to go before it reaches high standards of ‘cost transparency’ and ‘cost comparability’ in the eyes of asset owners.
"This subject will likely come under greater scrutiny now that costs in many areas are rising – particularly in fees for fund servicing (custody, audit, legal) and various ‘ad hoc’ charges passed on by asset managers to their clients outside of the management fees.
"We still see real scope for investors to improve value for money, without compromising on strategic goals, in areas such as transaction cost analysis.”
