Skip to main content
The Actuary: The magazine of the Institute and Faculty of Actuaries - return to the homepage Logo of The Actuary website
  • Search
  • Visit The Actuary Magazine on Facebook
  • Visit The Actuary Magazine on LinkedIn
  • Visit @TheActuaryMag on Twitter
Visit the website of the Institute and Faculty of Actuaries Logo of the Institute and Faculty of Actuaries

Main navigation

  • News
  • Features
    • General Features
    • Interviews
    • Students
    • Opinion
  • Topics
  • Knowledge
    • Business Skills
    • Careers
    • Events
    • Predictions by The Actuary
    • Whitepapers
    • Moody's - Climate Risk Insurers series
    • Webinars
    • Podcasts
  • Jobs
  • IFoA
    • CEO Comment
    • IFoA News
    • People & Social News
    • President Comment
  • Archive
Quick links:
  • Home
  • The Actuary Issues
  • September 2018
09

Transaction costs account for nearly one-quarter of investment charges

Open-access content Wednesday 26th September 2018 — updated 5.50pm, Wednesday 29th April 2020

Broker commissions, entry fees and other transaction costs make up nearly one-quarter of the total investment charges borne by the world’s largest institutional investors.

2

That is according to analysis of 19 pension and sovereign wealth funds with total assets of over £2trn, which found that transaction charges are nearly half as costly as investment management fees.

It was also found that average transaction costs are just as high as the performance fees paid out by institutional investors, although these vary significantly from fund to fund. 

The research is intended to shed light on the "hidden" costs incurred in trading securities before returns are calculated, and is one of the most detailed studies of its kind.

"While transaction costs are clearly material, there is a range," said John Simmonds, UK principal at CEM Benchmarking, which carried out the analysis.

"Where you sit in that range is dependent on asset mix, volumes of trades, estimates of spreads or simply if you are paying more or less than others for similar activities."

The transaction costs identified include broker commissions, taxes, broker research, fixed-income and over-the-counter derivatives spreads, entry or exit fees, hedge fund fees and transaction costs for private investments.

It was found that these account for 24% of total investment costs, with management fees making up 49% and performance fees 24%, while governance and overlays are responsible for the rest.

CEM Benchmarking said the total average costs for the investors studied were 86.3 basis points (Bps), with transaction costs at 20.2 Bps, performance fees at 20.4 Bps, and management fees at 41.8 Bps.

This comes after the UK's Financial Conduct Authority set up a working group to support consistent and standardised disclosure of costs using reporting templates, with similar initiatives taking place in Australia and the Netherlands.

"There has been a real drive towards transparency in investment costs around the world," Simmonds continued. "Obtaining the data is the first and hardest part.  

"What comes next is a comparison with others on a sensible basis to determine if those costs are reasonable."

Sign up to our free newsletter here and receive a weekly roundup of news concerning the actuarial profession

This article appeared in our September 2018 issue of The Actuary.
Click here to view this issue
Filed in
09

You might also like...

Share
  • Twitter
  • Facebook
  • Linked in
  • Mail
  • Print

Latest Jobs

New Fast-Growing Team - Actuarial Systems Development

London (Greater)
Excellent Salary Package
Reference
143762

Actuarial Pension Consultant – Scotland/Remote – Up to £90,000 plus bonus

Edinburgh / Glasgow / Remote working
Up to £90,000 + Bonus
Reference
143761

Part Qualified Pensions Actuary– Specialised Pensions Consultancy - Scotland/Remote - Up to £70,000

Edinburgh / Glasgow / Remote working
Up to £70,000 + Bonus
Reference
143760
See all jobs »
 
 

Today's top reads

 
 

Sign up to our newsletter

News, jobs and updates

Sign up

Subscribe to The Actuary

Receive the print edition straight to your door

Subscribe
Spread-iPad-slantB-june.png

Topics

  • Data Science
  • Investment
  • Risk & ERM
  • Pensions
  • Environment
  • Soft skills
  • General Insurance
  • Regulation Standards
  • Health care
  • Technology
  • Reinsurance
  • Global
  • Life insurance
​
FOLLOW US
The Actuary on LinkedIn
@TheActuaryMag on Twitter
Facebook: The Actuary Magazine
CONTACT US
The Actuary
Tel: (+44) 020 7880 6200
​

IFoA

About IFoA
Become an actuary
IFoA Events
About membership

Information

Privacy Policy
Terms & Conditions
Cookie Policy
Think Green

Get in touch

Contact us
Advertise with us
Subscribe to The Actuary Magazine
Contribute

The Actuary Jobs

Actuarial job search
Pensions jobs
General insurance jobs
Solvency II jobs

© 2023 The Actuary. The Actuary is published on behalf of the Institute and Faculty of Actuaries by Redactive Publishing Limited. All rights reserved. Reproduction of any part is not allowed without written permission.

Redactive Media Group Ltd, 71-75 Shelton Street, London WC2H 9JQ