CFOs Think European Fund Fees Face Coming Changes, Lipper Fitzrovia Reports

Amid continent-wide discussion regarding fund fees and expenses, European chief financial and operating officers foresee a retooling on how fees are administered, a Lipper Fitzrovia survey says
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Amid continent-wide discussion regarding fund fees and expenses, European chief financial and operating officers foresee a retooling on how fees are administered, a Lipper Fitzrovia survey says.

Of the more than forty CFO/COO delegates who attended the European Institute CFO/COO Roundtable in Paris June 16, 77% called for improvements in the transparency of the annual distribution of fees.

The survey also found that 51 % believe that initial charges on funds would disappear in Europe, and 87% said they thought performance fees would become more popular for long-only funds.

A large portion of fund companies refer to the cost of distribution when explaining to clients the reason for raising management fees, saying that any reduction in initial charges will only increase pressure on annual management fees.

But most notably, 65% of those surveyed said fund of fund fees were simply too expensive.

Funds of funds have continued to receive pressure to offer more clear explanations of their fee structures in recent months, and Lipper Fitzrovia says the increased tendency to use performance fees for long-only funds might indicate the growing acceptance of hedge fund fee levels.

The survey’s administrators say they think an increased number of fund companies will probably offer more explanation of their policy on fees, with passively-managed funds are under pressure to track their indices more closely by cutting TERs.

Also, small funds can run into problems of disproportionately large TERs when anticipated sales do not materialize.

“Fund companies are already going beyond TER disclosure and actively justifying their funds’ expense levels, comparing their funds to their peers,” says Ed Moisson, director of Lipper Fitzrovia’s European fiduciary operations. “This in turn could move to a greater emphasis on ‘value’ and not just a fund’s pure cost – linking expenses to other factors such as performance, risk and service.

He continues to say, “The focus on areas such as fee justification and ‘value’ are likely to be further strengthened by an increasing emphasis on fund governance over the next five years or so, partly as a result of the UCITS Management Directive, which requires more structured oversight of funds.”

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