A breakdown of total expense ratios (TER) reveals that UCITS fund managers retain on average 42% of fees and charges, while most of the remaining 58% is paid to distributors and on administration charges.
The report, commissioned by the European Fund and Asset Management Association (EFAMA), also reveals that investment management fees in Europe are on average only about 3 basis points greater than management fees in the US across all asset classes, if you exclude the top three mega managers. This is despite economies of scale enjoyed by US funds. However, unlike the US, European players operate against a backdrop of 27 languages and varying local regulatory and tax regimes, further increasing their costs.
The report points out that as the European fund industry expands and matures, operational efficiencies should enable the reduction of fund expenses over the medium and longer term. UCITS IV promises to facilitate scale efficiencies through cross-border mergers and master-feeder structures enabling lower investment management fees. The report aims to give investors greater transparency and understanding of cost breakdown within European mutual funds.
“EFAMA has long argued that transparency needs to be improved at the point of sale and harmonised for all products. We would also encourage a similar transparency within the EU across all long term saving solutions, including insurance and structured products. This report was a unique opportunity involving 17 EFAMA corporate members, accounting for over €1trn in EU domiciled funds, to benchmark and disaggregate mutual fund fees. It therefore goes some way to support our aim towards improved transparency of fees and in giving investors more independence with their long terms savings and investment needs,” explains Massimo Tosato, Vice-President of EFAMA and Chair of the TER Working Party Group.
The current bundling of distribution and management fees has made it difficult to understand the costs charged by various types of organisations in the fund value chain. The report benchmarks how much on average of European funds’ TER are paid, by the survey participants, to investment managers, fund distributors and other services provider, such as fund administrators and custodians.
EFAMA is the representative association for the European investment management industry. It represents through its 26 member associations and 56 corporate members approximately EUR 13.8 trillion in assets under management, of which EUR 8.1 trillion was managed by approximately 54,000 funds at end June 2011.
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