Demystifying Fund Costs

29th April 2015

Paperjam Club – 10X6 Finance

local

platformdistribution

efficiency cross-borderfundscosts TER profitability

assets

mutualisation

proprietary

investment

services

administration

domiciles

competitiveness

synergiescentralization

management

4

We want to address two key questions

405funds

500bn

AUM

5domiciles

• Luxembourg• Ireland• UK• France• Germany

3 asset classes

• Bonds

• Balanced

• Equities

Our analysis relies on a representative sample of funds and we keep adding participants

Average ongoing charges (%)

At first look, cross-border platforms are more expensive than domestic domiciles

Source: Funds KIID

© 2015 Deloitte Tax & Consulting 7

Our objective is to identify and understand the cost drivers

FOCUS OFOUR STUDY

Let’s decompose the Ongoing Charges and understand what impacts them

100%

Breakdown of ongoing charges – Luxembourg domiciled UCITS

Source: Annual Statements; Deloitte expenses Database; Deloitte Analysis

Focus on cross-border distribution add-on cost in bpsWORK IN PROGRESS

This represents between a significant portion of the market servicing fees

Source: Annual Statements; Deloitte expenses Database; Deloitte Analysis

10-15% = 500 million

• 2bps means that Lux would still be more expensive

12

Let’s have a closer look …

Equities

• So what are the issues ?

o Trailer fees: the RDR example

o Inefficiencies: the US example

o Scale: US funds are 3/4 times bigger than in Luxembourg

13

The profitable inefficiency issue

The US model

The X Border model

Retail

Retail

Retail

IFA

IFA

IFA

Brokers

Brokers

Brokers

NSCC

Funds

Funds

Funds

Retail

Retail

Retail

IFA

IFA

IFA

Banks

Insurers

Intermediaries

Platform

Platform

Platform

Funds

Funds

Funds

Scale: get bigger and consolidate

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Conclusion

1

2

3

Trailer fees: regulation should help

Inefficencies: clear need of a new model