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.
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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?
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