At a glance
- Fees in professional asset management and global custody are on the move.
- The fees are a central component of the return.
- There are different models for structuring the fees in asset management.
- A cost analysis requires specialist knowledge.
- Investors often lack a broad market overview to compare fees.
Fees are a key component of returns
Asset management costs are on the move. Especially in times of low interest rates, they are increasingly in the focus of investors. High fees reduce the return on investment for sure, while the returns themselves are subject to uncertainty. Asset management costs also play an important role in the public debate.
Are your fees in line with the market?
As a leader in Investment Consulting & Controlling, we have a comprehensive market overview of the current fee conditions in asset management and the global custody business for institutional investors. We have four broadly based and independent fee databases at our disposal:
The systematic recording of fees and our internally developed tool enable us to compare the fees you pay with the market and to assess them as well as to show you any potential for reducing costs.
Recent studies (content in German)
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Complex fee models
Our study "Management fees in institutional asset management" explains and analyses the fee models most frequently used in practice and draws a conclusion from the perspective of investors.
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Incentives from fee models
As with any contractual relationship, there is also a classic principal-agent problem in institutional asset management. An institutional client (principal) commissions an external asset manager (agent) to manage their money. While the client's interest lies in maximising (risk-adjusted) performance, asset managers may also pursue other objectives in some cases.
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More than just a management fee
Investments that are supposedly safe, such as government bonds, are not currently yielding a negative return. Real assets such as equities are expected to generate at least a return, but this is subject to fluctuations and uncertainty. For many private investors, however, a secure increase in the expected return can only be achieved by avoiding asset management costs.
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Cost gap between private investors and institutional portfolios
Unlike professional investors, private investors often hold complex and less liquid financial instruments in their portfolios. This is surprising because, as we know, the more complex the instrument, the higher the costs. Since it is very difficult in the current low-interest rate environment to compensate for the cost disadvantages of more expensive products through better investment returns, the use of more expensive products often results in a poorer return on investment.
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Only a broad comparison brings clarity
The added value of the present study compared with other studies of the Swiss pension fund market lies in the use of data from the revised annual reports. These data are characterised by a high degree of standardisation and reliability. In contrast to surveys based on subjective interviews, this allows a high degree of comparability. The analysis focuses on important and comparable key figures. Finally, the study is based on a broad and representative peer group of 289 pension funds with accumulated pension assets of CHF 649 billion and over 3.4 million insured people.
Dealing with retrocessions
Retrocessions or kick-backs are cash or non-monetary payments which banks or other financial intermediaries receive from a third party in connection with the execution of client orders. Retrocessions create intransparent conditions with regard to the actual asset management costs (hidden additional sources of income for asset managers) and the effective interest situation. In two landmark decisions, the Federal Supreme Court confirmed that inducements belong to the client (BGE 132 III 460, 2006 and BGE 138 III 755, 2012). In accordance with Art. 400 para. 1 of the Swiss Code of Obligations, the contractor must fully disclose the receipt of such inducements and forward them to the client, unless the client has legally waived the forwarding.
