Lipper study reveals extent of UK fund fee hikes

More than 150 UK domiciled funds – equivalent to 12% of the total universe of funds today – have raised annual management fees over the past decade, a new Lipper study has revealed.

By contrast, just 40 funds lowered their fees over the same period, equivalent to 3% of the total universe.

But the trend of rising fees “tailed off dramatically” in 2009 and 2010, according to the report, which investigates the changing face of existing mutual funds’ AMCs over a ten-year period.

A drop in fund sales and performance in the aftermath of the financial crisis is likely behind the changing pattern.

Ed Moisson, author of the report, said this year has begun to see an increase in activity in terms of fund fees. 

“Activity was very muted in 2010 across the board, although this looks to have picked up again in 2011, for example J.P. Morgan, Standard Life Investment, and Henderson making changes to their charges,” he said.

Moisson added RDR remains the initiative most likely to shake up fund fees in the UK, but cautioned there is no certainty total costs to retail investors would fall as a result of the changes.

Rising AMCs are most evident in the actively managed equity space, the report said, with 121 of 132 fee changes over the decade seeing costs increase at an average hike of 30 basis points.

The 11 equity funds lowering fees cut them by an average of 24 basis points. Of funds domiciled in Luxembourg and Ireland, 1,080 raised AMCs over the past decade, equivalent to 18% of the existing universe, but the study said there is a far less clear pattern in terms of the timing of those increases.

“Offshore funds are a much bigger universe, where different pressures in different markets open up, including pressures for fee rises from intermediaries such as banking distributor channels,” said Moisson.

The study also noted economies of scale achieved for AMCs are not passed on to retail investors, in contrast to practices in the US.

Moisson said using fixed TERs – promoted as a victory for transparency – can lead to firms earning fees higher than the percentage quoted in the event a fund’s assets increase.