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Fees: The Cost of Investing

We must look beyond fees alone and consider performance and risk as well to determine value.


‘Fees’ has become the catch-all term for the various costs incurred by asset owners for investing. Challenges remain in gaining sufficient clarity about the costs involved with investing, how they are calculated and how they are aligned with client interests.

Investors need to be aware of the value being generated from their investment, and in a low-return environment, fees come under scrutiny as they represent a greater proportion of the potential return available to clients.

In order to identify if a manager has delivered value, it is important to look beyond costs alone and consider a combination of performance, fees and charges, and risk. From the asset owner’s perspective, value is delivered in the form of the total risk-adjusted return net of all charges.

“In my mind, to justify his or her fee structure, a manager should be able to show the ability, net of fees, either to deliver returns that are superior to the market with equivalent risk or to deliver market equivalent returns with less risk.”

– Lee S. Ainslie III, Managing Partner, Maverick Capital

This CFA UK position paper sets out the three dimensions for estimating value and explains how these can be used to align client and investment manager interests. This paper also details CFA UK’s recommendations on how to ensure its professional members provide their clients with a complete picture of all fees and charges that will be applied to their portfolio or segregated accounts.


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