JPMorgan Asset Management has reduced the amount investors pay for the basic operation of its funds as providers react to regulatory pressure on how much they charge.
The asset manager currently charges private investors in its funds a fixed cost of 0.18 per cent for what it calls operating expenses. This covers the costs associated with accounting, banking, legal services and marketing. The operating fee is included in the ongoing charges figure along with the annual management charge.
But JPMorgan Asset Management has now capped this cost at 0.15 per cent, and made it variable instead of fixed, meaning it should fall as a fund grows in size.
A spokesperson for JPMorgan Asset Management said: "Variable operating expenses will provide [investors] with economies of scale as funds grow in size. In addition, capped expenses provide certainty of maximum operating expenses both for new funds or if assets decline."
However, some fund analysts don't think this goes far enough. Rory Maguire, managing director at fund rating firm Fundhouse, said its old fee of 0.18 per cent was "simply too high". He added that asset managers should charge operating fees closer to the level of those paid by larger institutional investors, as private investors' money generally comes efficiently and in bulk via investment platforms. JPMorgan Asset Management has an operating fee cap of 0.06 per cent for larger investors.
"The cap at 0.15 per cent looks good in theory, because costs have reduced," explained Mr Maguire. "But they have reduced from a very high rate. We are speaking to all fund groups that have fees that are deep into the teens for operating costs. We also do not see why [investors] should pay more costs [for smaller funds]. It is a cost of doing business and clients should not be penalised for investing in smaller funds."
Adrian Lowcock, investment director at asset manager Architas, said JPMorgan Asset Management's decision was "a good sign" even if the impact on investors was minimal. However, he also pointed out that operating costs are generally constant regardless of fund size, and suggested that they might not fall much below 0.15 per cent.
"The issue is ultimately swamped by the annual management charge and it is there that investors need to see some flexibility, particularly as a fund size grows," he added.
JPMorgan Asset Management's decision follows a study by the UK regulator, the Financial Conduct Authority (FCA), which looked at competition in the asset management industry. It found most providers had poor form on reducing fees as assets and the number of investors in a fund increased, despite their own costs falling. The FCA is set to tackle this more forcefully with new rules later this year.
Some other fund providers have also taken action before new rules come in. Old Mutual Global Investors made changes to the charging structure of a range of its funds aimed at financial advisers. It moved away from the generally accepted ongoing charges figure and replaced it with a fixed charge. Old Mutual Global Investors said this would provide more clarity and consistency for investors, and said it had done this because of the FCA's study.
Fidelity International, meanwhile, has implemented a variable fee linked to the performance of a fund, which it said will create a fairer alignment between its clients and itself.
Hugues Gillibert, chief executive of fund research firm Fitz Partners, said JPMorgan Asset Management's decision is likely to please the FCA as it fits into its plans for fund providers to be more transparent, deliver better value and be better aligned with investors' interests.
"We have seen pressures on fund fees, and calls for more transparency and more recently to demonstrate value for money," he said. "JPMorgan Asset Management's move to pass on economies of scale fits perfectly into this environment, as does its abolition of a fixed fee that might be simple and predictable, but is not as transparent."
