In the latest edition of its ‘Investment Advisory Fee Benchmarking Report’, the company presents research based on asset managers’ confidential fee schedules and “exposes the true cost of investment advisory, defined as the fees paid to entities providing advisory services to the fund.”

Hugues Gillibert, Fitz Partners chief executive, said: “A substantial part of a fund management fee consists of the cost of investment advisory or portfolio management and the level of this specific cost impacts their revenues substantially.

“There is a real need for asset managers to be able to review all parts of their expenses and look even more closely to the structure of their own management fees.”
 
Fitz Partners said in the past few years it had seen management fee levels decreasing while the investment advisory fee was still rising.

For the first time since the first publication of the Investment Advisory fee Benchmarking report in 2015, the firm reported a “downward trend in the overall level of investment advisory fees.”

Overall, average investment advisory fees have fallen by 5% from 41bps to 39bps in the last 12 months but still show an 11% increase from the 2015 levels (35bps).

Since 2015 “gross” management fees (including distribution fees) have come down by 18%, the research showed.

For equity funds, the share of management fee paid for investment advisory had increased by 10% over the past four years, meaning that the remaining revenue or margin received by fund houses from management fees after any investment advisory and distribution fees had been reduced.   
 
Mr Gillibert added: “We would have expected the reduction of the Investment Advisory fee component to happen earlier and be more in sync with the overall downward trend seen in management fee levels.

“The timing difference could reflect a certain lack of elasticity when it comes to the pricing of funds’ investment advisory function be it from internal teams on which their remuneration depends, pressure from internal transfer pricing rules or the strong bargaining power of sub-advisors.

“From discussions with clients, we know that fund houses are becoming more focused on these internal fees and that in-depth fee reviews are carried out more regularly.

“Fund fees benchmarking is not only a review of the level of funds costs to investors, it is also part of good business practice and stronger governance supporting asset managers’ margin preservation efforts.”