New Zealanders have been negotiating for lower interest rates on their home loans for years and now it is time advisers take the same tack and ask for lower fund management fees for their clients.
Douglas, speaking at the Meet the Managers Roadshow last week, said fund management fees are too high and it’s time to bring more wholesale pricing to retail products.
“Lower fees are our most certain source of alpha,” he said
He says there needs to be more talk about fees. Some financial planning groups are quite focussed on fees, but overall he feels people are relatively ambivalent towards the subject.
Interestingly, Financial Markets Authority chief executive Rob Everrett talked about fees last week too. He says, referring specifically to KiwiSaver, “we were banging on about the fees,” but people “weren’t really paying regular attention”.
“We have tried to really rub people’s noses in it,” he says, and the regulator was pleased to see some lower-fee-model schemes challenging the incumbents.
Douglas isn’t advocating for passive management; MyFiduciary uses both active and passive funds.
Any adviser with $5 million in funds under management with a manager should be able to negotiate lower fees. If they don’t have that they should be considering combining with other advisers and using their collective buying power.
Douglas says advisers should be able to negotiate at least a 25 basis point discount on fund management fees. It’s a competitive market with plenty of new entrants, especially from Australia.
Some of these managers have been known to cut their fees by more than half to get a foothold in the New Zealand market.
Douglas says the sector which is paying above the odds for fund management fees is the charitable trusts: “They are paying way too much,” Douglas says.
While advisers can negotiate for lower fees, Douglas is pleased to see some managers are reducing their costs. Recently Daintree, an Australian manager offering fixed interest funds, has cut fees and Harbour Asset Management reduced fees on two of its most popular funds.
The fee for both Harbour NZ Corporate Bond Fund and Harbour NZ Equity Advanced Beta Fund are now 0.45% pa, including management and other costs, excluding GST.
“These funds are two of our most cost-effective solutions. The Advanced Beta Fund draws on the detailed quantitative research, specifically factor analysis, which underpins all Harbour’s equity funds. The Corporate Bond Fund draws on the credit research which underpins our Core Fixed Interest and Income Funds.”
“We have been working on reducing outsourced costs and, as these funds have grown, the fixed costs are also spread across higher FUM. We want to share the improvement in costs with our investors,” Harbour says.
In a low return environment (especially fixed interest) a cut in management fees can make a significant difference to returns, Douglas says.
“Overall fees are too high,” he says. “If I’m paying 1% for a balanced fund, I’m paying far too much for that.”