And you thought the finance industry charged a lot…
The complaints of investors about the high fees of actively managed funds become louder every year. And I get it. If most actively managed funds underperform their benchmark after fees, why bother with them? Index funds and ETFs provide lower fees and better performance than many actively managed funds, so investors are just doing what is best for them. This trend towards indexing and passive investing has created significant fee pressure in the fund industry and UCITS funds in the European Union have seen their fees decline since 2013.
Average fees for UCITS equity funds in the EU
Source: Investment Company Institute
But while transparency in the asset management industry has led to declining revenues, the advertising market is still the Wild West. ISBA, the UK’s leading trade body of advertisers asked accounting firm PwC to account for the cash flow of advertising money spent in the UK (both online and in traditional media). Turns out that for every pound spent in advertising, only 51p arrive at the publisher. 7p go to the advertising agency (e.g. WPP), 8p to demand-side platforms (DSP, e.g. Amazon, Adform), and another 8p to supply-side platforms (SSP, e.g. Google Ad Manager, Index Exchange). 10p are costs for technology, such as ad servers and data verification and management. Imagine an asset manager would take 7% in fees like advertising agencies do or 8% like Google and Amazon do for their advertising services. Hundreds of newspaper articles would be written. But nobody seems to complain about the fees Google, Facebook, and other companies in this sector charge…
And then there are 15p – around one-third of the costs of advertising – that the study simply couldn’t locate. Nobody knows where that money ends up. Most likely, the true fees significantly deviate from the stated fees. But imagine what would happen to a business that couldn’t account for 15% of its expenses. I don’t think PwC would approve.
And in the end, they didn’t in this case either. PwC states that the data maturity is weak in this area and that standardisation and transparency are urgently required.
The costs of advertising
Source: ISBA, PwC.