With some investors now putting as much money with fund managers as institutions, it is time for a re-balancing of their fees says Victoria Moffett FIA, CERA
High net wealth individuals (HNWI) pay higher fund management fees than institutional clients. And when I write ‘higher’ I don’t mean just a few basis points here and there. I mean $500,000 if you’re an individual on the cusp of being considered ultra high net wealth and are paying 0.5% more on a very similarly invested fund for 10 years. This is significant.
So what do HNWI get for their extra fund fees? Well, for starters there might be tickets to the occasional sporting event here and there. Who doesn’t love a day out at Ascot? But materially, they seem to be getting very little extra bang for this extra buck. Fund managers might claim that $30m is not much when compared to some of their institutional clients. And to the extent that this is true I can hear an argument that putting more money with a manager means they can give you the benefit of bulk capital. However, this is under the premise that a manager is receiving greater assets to manage from institutional clients.
In the UK alone there are at least 1,000 pension schemes with fewer than £25m of assets. If these schemes are receiving institutional rates, then surely so should successful individuals?
I feel that the rise of the HNWI into institutional levels of wealth is something that the investment industry has been relatively slow to pick up on. Or perhaps I should say, has not had sufficient competition to be forced to engage with. Why would a fund manager offer lower rates than their competitors unless meaningfully asked?
The question is, will the industry decide to innovate from within or leave itself open to external disruption?