Demand For Cheaper Products May Sink Fees

Asset managers are likely to see smaller paychecks in the future as the result of investor demand on companies to cut fees and to offer cheaper products – or as investors turn to more expensive offerings such as hedge funds, according to a study by management consultant Capco.

Asset managers are likely to see smaller paychecks in the future as the result of investor demand on companies to cut fees and to offer cheaper products – or as investors turn to more expensive offerings such as hedge funds, according to a study by management consultant Capco.

“We are seeing a trend in building portfolios at both ends of the spectrum,” said Capco’s Edward Hawthorne in a Reuters interview. The study found a shift in the industry to a demand for index funds, which charges between 20 and 40 basis points, instead of actively managed funds, which come with a 65 to 100 basis point fee.

“What we may see is that investors will be paying half the fees for an index fund than for an actively managed stock fund, and that savings in management fees for investors will make a considerable difference in earnings for the companies,” said Hawthorne. In response to the changing trends, says Capco, companies are adding alternative investments to their offerings, and consolidating some funds to cut costs.