SEC gives green light to first ‘negative fee’ fund
Latest stage in a ferocious fee war waging among asset managers
The first investment fund that pays customers who commit their money has been given the green light by the Securities and Exchange Commission, the US markets regulator.
The arrival of so-called ‘negative fees’ is the latest stage in the ferocious fee war waging among asset managers. It is a sign of the difficulties for new players trying to break into a market that is dominated by a handful of large index fund managers that have the economies of scale to offer ever-cheaper funds.
Salt Financial, a New York boutique manager, has introduced a new charging structure for its recently launched Salt Low truBeta US Market ETF after receiving regulatory approval late last week. The structure applies a 34 basis-point fee waiver to the fund’s 29bp management charge.
The result is that the fund will have a negative fee of 5bp, meaning customers will receive $5 for every $10,000 they invest.
The structure will be in place until the fund reaches $100m of assets — seen as a crucial size for a new ETF to reach.
Last week, before the company had received regulatory approval, Salt’s president and chief operating officer Alfred Eskandar told FTfm the company had devised the fee structure after struggling to attract assets to its first ETF, which it launched last year.
“David needed a slingshot to take down Goliath — we need a negative fee model to force our way into this anti-competitive market,” he said.
Asset managers gave up more than $3.5bn in income through fee cuts last year — and nearly $16bn since 2014 — according to Flowspring, a fund management research company. It found that products with expense ratios below 5bp grew 20 times faster than those above 20bp over the past five years.
Fund giants including BlackRock, Vanguard, JPMorgan Asset Management, Fidelity Investments and Charles Schwab have been especially aggressive fee-slashers.