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EU puts fees under the spotlight 

December 2, 2015

Alan Beaney, FT Adviser

Fees for managing private client portfolios are very rarely simple and easy to understand.

They usually have a variety of components which typically include one or all of the following: an ad valorem management fee, transaction charges, a compliance charge, custody charges, and an extra charge for managing Isas.

Other sources of income include revenues from in-house funds held in client portfolios and interest earned on client cash, as this is very rarely credited in full – even at today’s low interest rates it is surprising how much revenue is generated from this source.
Given the above it is very difficult to calculate the actual annual cost of managing one’s portfolio. However, it is not uncommon for these ancillary charges to account for the same or even a little more than the headline ad valorem charge. This is especially the case for smaller portfolios where the impact of these typically fixed costs are higher.
However, things are about to change as new European-wide legislation (Mifid II), currently scheduled to come into force on January 3 2017, will require managers to disclose every year the total costs involved in managing a portfolio, including the cost of third-party management. The approach of this deadline is resulting in a growing number of managers introducing clean fee structures where one, all-inclusive fee is levied. Read more
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