Asset managers deserve to be paid up to a third of the alpha they generate, Towers Watson's EMEA head of investment has suggested.
Ed Francis believes asset managers should potentially be paid more than they are currently for their skills, in recognition of the benefit they can provide to clients.
Should fees settle at too low a level, fund managers will be forced to run too much money in order to benefit from economies of scale, he warned.
In an interview with Investment Week's sister magazine Professional Pensions, he said: “If I am a skilled active manager, I should expect to get paid for that skill as there is a benefit to my clients from it. How much should I get paid? Well, I should get paid a proportion of the value that I add.
"We can have a debate about what the right number is but it is not half, and a quarter might be a bit too low. So we settle on between a quarter and a third of the value that a manager is expected to add as a reasonable amount to expect to pay in fees.
"Whether that is through a base fee or a performance fee is a point of detail in terms of structure."
However, if skilled managers only outperform by a small margin, the fees may amount to no more than 50 basis points, he added.
Francis' comments come as active managers' fees come under pressure from a number of factors, including the unbundling of charges, competition from cheaper passive instruments, and the bargaining power of large platforms and wealth firms.
In September, manager Neil Woodford criticised his peers for charging too high a price for performance which often is no better than a tracker.
