Plugging the leaks: Can funds improve investor outcomes by rethinking administration costs?

Industry-wide approach to fuel innovation needed

Funds are caught in a cost paradigm. Usually, as an industry grows, economies of scale dictate that the unit cost comes down, but as global fund assets have steadily grown, the cost of fund servicing is not coming down as naturally as you would expect.

Adding a dollar of fund administration revenue tends to add about a dollar - or often even more - of cost, meaning administration costs are growing in parallel with revenue. Those cost reductions that have occurred have largely been demanded by funds, rather than by suppliers as we have seen, for example, in the cloud industry. These costs are eating into everyone's pension pots, but the fund industry has a prime opportunity to upgrade operational mechanisms and deliver better returns for investors. Providing a stabilising impact: Dividends still matter even after pandemic blues ...