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The hidden index charges driving your ETF costs

Index companies are charging ETF issuers hefty fees which may get passed onto investors
June 22, 2017

Large index providers such as MSCI and FTSE Russell are charging exchange traded fund (ETF) providers and asset managers significant fees, which are squeezing their margins and could be keeping prices higher for investors.

There has been ferocious price competition in the ETF market in recent years, with providers forced to slash fees on popular funds such as those that track the FTSE 100 and S&P 500 indices. And at the same time as ETF providers' margins are squeezed, the index providers they rely on have become ever more powerful, enabling them to command tens of millions of pounds in fees per year.

Market indices are used in every area of the financial system and the companies which devise them charge hefty licence fees to anyone referencing index data, or the companies and sectors within their indices. The strength of brands such as the FTSE 100 or S&P 500 means that large providers such as MSCI and FTSE have almost no competition in areas where ETF issuers face the most pressure, so index providers can make highly lucrative returns.

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