The study conducted by the Independent Consultants Cooperative (ICC), a consortium of independent investment consulting firms, considered the range of fees paid for broad investment product categories by different kinds of investors among clients of consulting firms that belong to the ICC, which is currently comprised of seventeen firms located across the country, including Cambridge, Massachusetts-based New England Pension Consultants and St. Louis-based Summit Strategies. None of the ICC member firms offers investment management services.
In general, the analysis disclosed that, among the sponsor types considered, public defined benefit plans paid the least and the owners of private wealth paid the most for investment advisory services.
Product Analysis by Plan Type
Median Fees in Basis Points
The preliminary results suggest that, while managers’ fee schedules are typically graduated, there was what the report’s authors described as “surprisingly little correlation” between portfolio size and the advisory fees actually paid. Moreover, regression analysis considering fees relative to portfolio size, plan sponsor type, and style did not explain a significant amount of the variation in fees, according to the ICC.
Nonetheless, some broad relationships seem to hold true across the sample of over a thousand portfolios reviewed – median fees for portfolios under $10 million were generally higher than median fees for portfolios between $10 million and $30 million, which were in turn higher than median fees for portfolios over $30 million.
The ICC data indicates that the median fee for domestic equity portfolio management is progressively higher for the large-cap, mid-cap, and small-cap investment strategies, while international equity fees were generally lower than those for small-cap offerings.
Fixed-income fees for all products considered, including high yield fixed-income products, were significantly lower than equity fees, with average fees of 27, 29, and 39 basis points for core, intermediate, and high-yield offerings, respectively.
Median Fee (Basis Points)
Domestic Equity - Large Cap
Domestic Equity - Mid Cap
Domestic Equity - Small Cap
In the domestic equity arena, the ICC study demonstrated that the highest fees were paid for growth strategies.
Domestic Equity Analysis by Style
Median Fees in Basis Points
The ICC contributed representative data on actual manager fees paid last year for over a thousand actively managed separate portfolios for clients of ICC consultants. These observations were compiled into a database and analyzed in many different "universes" of manager fees paid. The ICC says it plans to complete a more detailed study early in 2004.
You can find out more about the ICC at www.icc-group.com