The low cost of global custodian charges shows they are a loss leader swallowed in return for hidden charges elsewhere in the value chain, Stonefish Consulting director Chris Sier told delegates at the Corporate Adviser summit. By Pam Atherton
He said global custodians are charging pension funds an average of 0.9 basis points for their services, when the real cost in 20 bps, he said.
“On a £1bn fund, the fee is not quite £100,000 to the client. That’s the cost of half an employee a year to do the job of custodianship, namely corporate actions, reconciliations and safe keeping for £1bn of assets. That isn’t the only way they are taking money off you. Who scrutinises what custodians do with interest income, stock lending and foreign exchange?”
“The real cost of ownership for pension funds is around 2.5-3 per cent, not the 1.1 per cent that they quote. For retail funds is more like 4.5-5 per cent. ”
He said further light will be shed on the world of hidden charges by research funded by The Economic & Social Research Council. He argued the recently launched Big Data Network will allow academics to work on data given to it by Unison and the LGPS, with Sier’s Stonefish Consulting going into pension funds and drawing down the data via automatic data feeds, “whether they like it or not”, to inform members of the real cost of their fund managers.
He lambasted the Treasury for denying there is a problem with hidden costs and claiming there is “no market failure in the market because there is no barrier to entry.”
Sier said: “There’s an asymmetry of information. The investor is only given very limited information, so there is a market failure. Retail investors don’t see the true costs and people buy these funds for the wrong reasons, such as past performance.”