Financial markets performance has a 2.5 times greater impact on the investment fee than the performance of the manager, consultancy firm LCP has said.
Based on its latest investment management fees survey, LCP warned that even underperforming managers can expect to see their fee increase.
A new fee structured was proposed by LCP in the report to better reflect "manager added value", which would reduce the base fee to a low or even fixed level boosted by a more significant performance-related bonus. Then the total fee would be capped to prevent excessive risk taking.
Heather Brown, LCP partner and co-author of the report, said: "The disconnect between manager performance and fees is a concern and we recommend an overhaul of fee structures. With today's low returns and high deficit levels, trustees would do well to focus on the fee savings that can be made."
According to the findings in the survey, LCP found that there was "significant scope and opportunity" for trustees to re-negotiate fees and recommended that they should regularly review manager fees and re-negotiate them when circumstances change.
The report also emphasised the importance of shopping around when choosing a fund as it found that for a £50m active global equity mandate, fees can differ by more than £200,000 per annum depending on the manager.
LCP's report, which is complied by the responses of leading investment managers in the UK, also found that there was a "positive shift" towards increased fee transparency.
From the respondents, 80% of investment managers provided data on indirect costs, mirroring a wider industry trend for increased openness, said LCP.
However 65% of those surveyed were unwilling to provide data on transaction costs, and disclosure by the fund of hedge funds universe was "particularly poor", with only one manager willing to provide details of the ongoing charges figure.
Brown said: "It is encouraging to see the increased level of transparency revealed in our survey; the direction of travel is clear. However, there is still some way to go and it is disappointing that fund of hedge funds mangers are still reluctant to disclose costs fully."
First published 04.06.2013
monique_simpson@wilmington.co.uk
