Asset Management: Possible Costs Explained

Most investors are aware that fees charged by investment service providers detract from their returns. That applies to investing with an asset management service just as surely as it applies to investing yourself using a stockbroker. The way that fees are structured varies between service providers. The most important cost factors that may apply are:

• Asset management fees
• Brokerage fees
• Fees charged by investment funds and structured product providers
• Stamp taxes
• Sales commissions
• Performance-based fees

In this guide, moneyland.ch explains what these fees are, and when they apply.

• Asset management fees

This is the fee you pay to the service provider for the management of your investment portfolio. In addition to the cost of asset management, this fee also normally covers any custody fees. With many asset management service providers, the asset management fee also covers brokerage fees. Important: Asset management fees are often described as flat fees, which can lead on to believe that they cover all of the investment costs. But in practice, there are additional costs that are not covered by the asset management fee.  

The asset management fee is typically a flat fee that is charged as a percentage of your portfolio’s value. Often, each portfolio offered by the same service provider will have its own flat fee. In many cases, the larger a portfolio’s stock component is, the higher the flat fee will be.

• Brokerage fees

When the asset manager buys and sells investments like stocks, bonds, and exchange-traded funds (ETFs), the trades generate brokerage fees. Some asset management service providers charge brokerage fees separately. With others, the trading costs are covered by the flat asset management fee.

• Fees charged by funds and structured product providers

These fees are not directly related to which asset management service you use. Whether or not you have to pay these fees, and how much you will pay, depends on which investment vehicles are used in your portfolio. These costs do not apply to holding individual bonds, shares in individual stocks, or other direct investments. They only apply when your asset manager uses investment funds like ETFs, and structured products like tracker certificates. These ongoing, annual fees are shown as the total expense ratio (TER). They are deducted directly from the fund’s assets. 

The TERs of ETFs and index funds are usually below 0.5 percent per annum. Some have TERs of less than 0.1 percent. Actively-managed funds, on the other hand, typically have much higher fees. TERs in excess of 1 percent per annum are not uncommon.

• Stamp taxes

Many kinds of securities – including stocks, bonds, and ETFs – are subjected to Swiss stamp duties when they are bought and sold. These taxes are always identical regardless of which Swiss service provider you use. You pay 0.075 percent tax on trades of Swiss securities, and 0.15 percent tax on foreign securities. Swiss index funds, on the other hand, are not subject to stamp duties.

• Sales commissions

Asset management service providers may receive retrocession fees from third parties – such as managers of investment funds used in portfolios. From a customer perspective, these sales commissions are not a direct cost. But they do have an impact on total costs because funds and other products that pay out sales commissions are often more expensive than equivalent products without sales commissions.

Sales commissions can create a conflict of interests because the asset management service provider may choose to use funds that pay them sales commissions even when these are not the optimal investment solution. Although any sales commissions paid should be made available to you as the end customer, there are service providers that keep them rather than passing them on to investors.

Many service providers forgo using products with sales commissions altogether. You can find these using the filters in the interactive asset management comparison on moneyland.ch.

• Performance-based fees

Some asset management service providers have performance fees that are based on a percentage of investment returns over a certain period of time. Typically, the fees are based on the previous year’s performance. The exact terms and conditions vary between service providers. In many cases, you only pay performance fees if your investment return surpasses a predetermined performance threshold. Other service providers base the fee on the total investment return. Performance fees are only used by relatively few asset management service providers.

• Other asset management costs

Depending on which bank you use, there may be additional costs, such as markups on currency exchange rates, and fees charged by stock exchanges. Some service providers charge custody fees separately, rather than including them in the asset management fee.

 
More on this topic:
Compare Swiss asset management offers now
Asset management: The pros and cons
Robo advisors: Online asset management services explained