Fund Fees Drop 20% But Investors Still Flock to Passives

Regulation introduced in 2013 has had a significant impact on actively managed fund costs, but investors are turning to ETFs instead

Jackie Beard, FCSI 23 October, 2018 | 2:41PM
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The Retail Distribution Review (RDR) came into effect in January 2013, and one of its key objectives was to stop fund companies from paying commissions to advisers. Instead, advisers were required to have an up-front, transparent agreement with each of their clients about the cost of financial advice and the fees they would charge for this advice.

The removal of commission payments from fund fees has seen a plethora of new share classes launched, commonly referred to as clean share classes; unlike bundled share classes, clean share classes do not include fees taken by advisers and platforms for their role in distribution.

Further, as the cost of active management has been laid bare, investors have increasingly turned to passively managed funds, on the view that not all actively managed funds justify their fees. The RDR also removed a previous stumbling block that had kept many advisers from using passive funds, as they paid low or even no commissions.

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About Author

Jackie Beard, FCSI

Jackie Beard, FCSI  is Director of Manager Research Services, Morningstar EMEA