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Skandia research points to wider performance fee use

Two-thirds of fund managers expect to see increased use of controversial performance fees in 2011, according to Skandia Investment Group research.

Providers expect further use of the fees across a range of asset classes next year, with 65 per cent expecting greater use in equity funds and 50 per cent expecting more absolute return funds to use the fees, SIG says.

This comes despite the fact several intermediaries have slammed the fees, saying they only benefit fund managers.

The research comes ahead of the full publication of a study into the future of fund management by SIG on December 6, based on a survey of 40 providers with a combined £1.3trn under management.

SIG says the number of fund share classes with performance fees last year was 1,433 but that has now risen to 1,952, according to Morningstar data. The total number of share classes available for sale in the UK is 19,616.

The research adds that while performance fee use may rise, respondents are expecting increasing competition in annual charges from low-cost players like ETF providers.

SIG chief investment officer James Millard says: “While our research clearly shows the industry expects to see the use of performance fees increase further over the next 12 months, in some areas of the market annual management charges will be under pressure as a direct result of the rise of passive products including ETFs. 

“However, whatever happens, the overriding need is for the industry to ensure all fee structures are open and transparent so that investors understand exactly what they are signing up to.”

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