Average fund charges have fallen through the floor in the UK since the RDR. Ongoing charges – that had been 1.22% back in 2013 – fell to 1.03% in 2016 and then have dropped even more to 0.82% in 2018, according to Morningstar data. The RDR has driven clean share classes in the UK and the shift to passives has also had an impact.
In continental Europe, however, fund charges moved in the opposite direction after 2013. Germany, Italy and Spain all saw increases through to 2016.
We now see MiFID II making its mark – but so far the impact has been uneven. German and Spanish charges are now heading down. But French charges are up slightly and the averages are only lower because of the prevalence of ‘Euro’ (money market) funds. In Italy, the cost of fund management continues to rise unabated, while in sharp contrast Swiss fund charges are substantially below the European average and are still falling.
There are idiosyncrasies across the continent. Local implementation of EU regulations varies between member states, and those with side deals – including Norway, Switzerland and soon the UK. Distribution channels vary widely, from the bank-dominated distribution of southern Europe to the IFA-driven market of the UK. Germany and France are hybrids, although basically skewed to bank distribution.
There are also pan-European trends, such as the shift from advice to discretionary portfolio management and execution-only, and we see more opportunities for third party funds through partnerships and guided architecture.
Europe is a challenge for international asset managers as well as for politicians, but the opportunities are considerable.
Download an outline of our latest report, European Fund Distribution: Routes to Market here or get in touch to find out more about our research.