Fees rise for active equity products

New research from mutual fund consulting firm Lipper Fitzrovia suggests a growing divergence between trends in active and passive equity funds’ fee levels.

According to the report, which focuses on the UK market, the total expense ratios (TERs) for actively managed equity funds, on an asset-weighted average basis, has gone up from 1.42 per cent in 2000 to 1.55 per cent in 2005. Index tracking equity funds’ average TERs have instead decreased over the six-year period. Ed Moisson, head of communications at the Lipper Fitzrovia, said: “This result appears to be part of a wider industry phenomenon of differentiating between premium priced actively managed funds and lower cost index trackers.”

Both asset-weighted average TERs and management fees of bond funds have increased during the period analysed, although at a lower rate than those for active equity funds.

In the research it emerged that “bringing fees in line with similar funds in the sector” is the most popular reason given by fund companies to justify rises. Promoters of actively managed funds also claim to be affected by rising costs of distribution and regulation, which has forced them to raise their fees.

Mr Moisson compared the funds industry to food retailing. “Even among food retailers price is not everything,” he said. Some supermarkets promote themselves on low prices and others on paying for quality, he added. In the same way, the funds industry claims to offer a huge divergence of value propositions, as well as other more usual factors such as customer service and brand recognition.

Disclosure of TERs, which is now being required across the UK and Europe, will help customers and advisers make better-informed decisions as to the funds they invest in and to assess fully their value propositions, said Mr Moisson.

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