Chinese mutual funds cut fees as regulators target $5 trillion sector

SHANGHAI – More than a dozen of China’s largest mutual fund firms said Monday as regulators set out to reform fee practices in the US$3.7 trillion (S$5 trillion) industry to cut costs for investors. , reduced fees on about 1,500 fund products.

Asset managers including China Asset Management and Bank of Communications Schroeder Fund Management said in separate statements that they would cut management fees for some equity-focused products from 1.5% of fund assets to 1.2%. Custody fees will be reduced from 0.25% to 0.2% of assets.

The cut comes after China’s securities regulator pledged on Saturday to slash fees for mutual funds, with the fund companies in the same language “to reduce the cost of managing wealth for investors.” It’s intended,” he said.

On average, mutual funds in China charge investors higher fees than their peers in developed markets such as the U.S., according to Morningstar.

The China Securities Regulatory Commission (CSRC) announced that it will formulate a reform plan after listening to market participants’ opinions, optimize the mutual fund fee collection model, and steadily reduce the industry’s fee rate.

Fund management fees will be capped at 1.2% of assets, while custody fees will be capped at 0.2%, state media said.

“Fee cuts will hit fund companies’ bottom line in the short term,” said Ivan Shi, head of research at fund consultancy Z Ben Advisors, adding that funds focused on active equity products are the most likely to be affected. He said he was in pain.

“It is not yet clear whether lowering commission costs will boost sales of fund products.”

The reform comes as regulators seek to limit executive compensation at fund management firms and banks as part of a so-called “co-prosperity” initiative aimed at reducing the gap between rich and poor.

Fund managers are often accused by retail investors in a sluggish market of charging high fees despite poor performance.

An index tracking the performance of China’s actively managed equity funds fell 22.3% last year, outpacing the benchmark Shanghai Composite Index’s 15.1% decline.

Nevertheless, the industry has collected 144.1 billion yuan (S$26.9 billion) in management fees in 2022, up 1.7% from the previous year, according to TX Investment Consulting.

The industry’s total assets under management have doubled over the past four years to 26.68 trillion yuan at the end of March.