Fee compression – Are you
benefitting?

By Dylan Tan | The CONNECT Blog

Jul 10

As the Fintech wave continues to deliver more cost-efficient and streamlined solutions to investors on all fronts, the fight to present lower fees to end users marches on amongst fund managers. One would think this price competition is welcome news for the consumer – and it rightfully has been, for the past few years, as financial advisers have slashed their fees to match the lower costs of fund management. Yet, we’ve seemingly now come to a plateau with fee compression.

The Financial Times reported that while asset managers have been pushing down expense ratios year over year, the fees charged by client-facing advisors has remained steady from the period 2005-2015, declining only marginally past that point.1 Yet, due to rising client account sizes and tiered pricing, traditional advisers are actually increasing their revenues per client.

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That doesn’t mean that clients are content staying put with unsatisfactory advisers – surveys by Ernst and Young have shown that if a modern investor switched advisory firms, the top two reasons cited were unsurprisingly, fees and performance.2 Drill a little deeper, however, and you find that they are not fee-sensitive in the traditional sense. They want transparency and a good explanation of what they are paying for, and how it is of value to them. In fact, this clarity of portfolio performance and fees is tantamount to the establishment of trust between client and adviser.

The top investment research firms have not turned a blind eye to this – Morningstar, a premier independent investment researcher, recently modified the methodology of their ratings system to place a higher weighting on how funds’ management fees are squeezing value from their investors.3 Due to their highly influential position within the financial ecosystem, the more rigorous assessment criteria will certainly be putting advisers and fund managers on their toes, which is usually good news for the client.

Growing hand in hand with the call for transparency is the demand for private wealth to be managed holistically.4 Many are looking to take advantage of digital infrastructure capabilities to satisfy their increasingly complex requirements, such as online tools to analyze risk profiles, real-time portfolio information and other technology-driven capabilities. Wealth managers who can make the investment process more user-friendly and seamless stand to capture a larger share of the growing market.

CONNECT by Crossbridge, Singapore’s first robo-advisory platform, was designed to fill that gap. Using insights from Morningstar, we construct portfolios using Actively Managed Certificates as the vehicle for our clients. These certificates allow us to ensure fee efficiency as we only have one fee to settle when we periodically rebalance our assets. In turn, we pass the savings on to the clients – we fully disclose our all-inclusive fees for each portfolio and they are the only fees we ever charge to clients at CONNECT. We do not tack on any hidden charges.

We understand that the clients of today demand fee transparency and a streamlined process for their investment needs. Here at Crossbridge Capital, we leverage on both our technical and financial expertise to deliver the convenience of a digital investment platform with the backing and advice of a seasoned investment team, marrying the best of both worlds.

References


1Ramos, R. R. (2019, June 27). How advisers were spared from the fee squeeze.
Retrieved from https://www.ft.com/content/2ff623e0-6d8c-11e9-9ff9-8c855179f1c4

2Birkin, A., Nanayakkara, N. (2016). The experience factor: the new growth engine in wealth management.
Retrieved from https://www.ey.com/Publication/vwLUAssets/EY-could-your-client-needs-be-your-competitive-advantage/$FILE/EY-could-your-client-needs-be-your-competitive-advantage.pdf

3Lim, D. (2019, June 29). Morningstar Overhauls Influential Ratings System.
Retrieved from https://www.wsj.com/articles/morningstar-overhauls-influential-ratings-system-11561766866

4Mirza, S., Schnieper, P., Lee, M., Birkin, A., Patusi, B., Toepfer, O., Nanayakkara, N. C., Shadforth, E., Trigili, N. (2018). EY Wealth Management Outlook 2018.
Retrieved from https://www.ey.com/Publication/vwLUAssets/ey-wealth-management-outlook-2018/$file/ey-wealth-management-outlook-2018.pdf

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