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Fee Compression for Money Managers

This morning I had a conversation with a firm sponsoring a Unified Managed Account platform and we were discussing the fee an investment manager should receive for providing their portfolio information.

For those not familiar with these platforms they allow an investment advisor to access professional money management at a lower cost because the manager does not actual execute trades on behalf of the client, rather they provide their portfolios and trades to an intermediary who handles custody and trading on their behalf.

For this service the money manager can expect to receive anywhere from 15 to 50 basis points for their services.  That's right I said 15 basis points.  So while the manager doesn't have the back office work associated with separately managed accounts they have to get comfortable with the idea of selling their intellectual property for a much lower fee than if they were hands on with the client's assets.

The question then becomes how much is a portfolio worth.  I understand that our business has many practitioners and as a result could be considered a "commodity", however I would like to think that those practicing the craft of managing money are putting labor into their security analysis, selection and portfolio construction and that labor is worth something.

Only the market can say how much, it seems as though we will find out as the intellectual property of money managers is separated from the back office functions of custody and trade execution.

Disclosure: No positions