Advisory fees, distribution fees, brokerage fees. A dear child has many names, and right now the investment fund industry is discussing vividly whether it is a good idea to ban the fee or not.
In its simple form, it is a question that many investment associations pay a fixed percentage of the association’s assets to cooperative banks each year so that the banks are able to cover the costs of their advice to the investors in the same investment association.
It serves the noble purpose that no investor should be left to himself and invest without having been duly advised on the investment. The problem is simply that all investors in a mutual fund that pays brokerage fees must pay even if they do not receive or have received advice.
The dissemination commission is thus a fixed percentage of the annual cost of owning investment certificates located in a bank that has an agreement with an investment association for distribution. There is really no negotiation and no individual considerations.
It has been argued in the current debate that investors who, for example, do not purchase investment certificates in Danske Invest, do not believe it is reasonable for Danske Bank to receive an annual fee for advice that investors have neither requested nor received, and which is calculated as a percentage of their investment.
Conversely, it has been argued from the finance industry that investors do not want to pay separately for investment advice and that a ban would result in many, especially, smaller investors no longer having real access to advice. InvesteringsFondsBranchen, IFB, also states that a large study has shown that three out of four want advice when investing.
These fixed brokerage commissions or advisory fees are under political pressure from many sides. In the Netherlands, the fees are prohibited, which has meant that smaller investors are without access to advice unless they pay separately for it.
The Danish Shareholders’ Association and the Consumer Council are critical of the current model with fixed communication commissions. And at the Danish Shareholders’ Association’s Investor Day in September, Minister of Business and Growth Troels Lund Poulsen stated that he would make a bill that the investment associations’ payment for distribution will be banned in the banks’ care schemes – that is, agreements where a bank takes a separate fee to care a portfolio consisting of investment funds .
Thus, the minister will achieve that no double is charged for advice – first through the investment association itself and then to the advisory agreement.
The EU is also pushing in this direction. The new MiFID II directive, which comes into force in 2017, states that in the future, an advisor must be active towards the investors and provide an ongoing “quality-enhancing service” in order to have the right to receive dissemination commissions.
Formuepleje is Denmark’s largest independent asset manager, and thus we are independent of banking interests. We have, and always have, held the view that Formuepleje’s business interests must correspond to investors. We have always put transparency in the cost structure high, and we have no more costs than those investors can see with the naked eye.
On the revenue side, we have also opted out of making money from brokerage, spreads, interest margins or the like when trading in our investment funds.
Our opinion is that Danish investors with the current model sometimes pay for something they do not get. On the other hand, a total ban can lead to investors being left to themselves. None of the parts are reasonable. One solution could be to reimburse the costs of the investors who do not use advice with the practical challenges it provides.
In any case, the wealth management welcomes the debate, and we will work to ensure that the legislators and the industry find a model that reduces the conflicts of interest that are so important to avoid when taking on the important and very responsible task it is to take care of. on investors’ money.