Mutual fund portfolio managers collect much more in fees than their separately managed account (SMA) counterparts, according to Dow Jones.
SMA equity managers collect between 38 and 50 basis points of assets, according to Cerulli Associates, but the average expense ratio for actively managed domestic equity funds is 1.57%, according to Morningstar.
However, the potential for tremendous growth in the SMA industry and within individual account balances still has many SMA managers thinking their work is worth it.
The reason the fees are low, according to a Morningstar product manager, is that 70% of SMA business is handled by just five firms: Merrill Lynch, Smith Barney, Morgan Stanley, UBS and Wachovia. Because these firms control 70% of the market, they know they can squeeze the manager's fee down," said the product manager, Ryan Tagal.
According to Mike Evans, who directs SMA research at Financial Research Corp., even amid an expectation of 20% per year growth in the industry, "One of the downsides from the management side, is that you won't get paid as much."