Today, E Fund, GF, Huaxia, Southern and other leading fund companies announced the reduction of the management fee and custody fee of their public fund products, and the management fee and custody fee of active equity products were reduced to 1.2% and 0.2% respectively, and the reform of public fund fee rate officially kicked off.
Comply with the development trend of the public fund industry
Why introduce rate reform at this point? There are three main reasons for consideration.
First of all, the fee rate reform is an inevitable result of the development of the public fund industry. Since 2019, the management scale of public funds has increased from 13 trillion yuan to 27 trillion yuan, and the scale effect has led to a continuous decline in the marginal cost of fund operation, providing conditions for reducing fund fees and reforming and improving the fee mechanism.
Secondly, the fee rate reform reflects the goal of the public fund industry to adhere to the original intention of inclusiveness and enhance investors' sense of gain. Investors' pursuit of a richer product system and lower investment costs has prompted fund companies to continuously innovate product types, actively reduce fund fees, actively benefit investors, promote the public fund industry to play a greater functional role in improving the wealth management effect, and make the results of modernization more beneficial to investors.
Finally, the fee rate reform will help promote the reform of the stock issuance registration system. By reducing the rate of equity funds, the investment cost of medium and long-term funds such as pensions, bank wealth management, and insurance funds will also decrease, which is conducive to attracting all kinds of medium and long-term funds to increase the allocation of equity assets through public funds, providing stable liquidity for the full implementation of the reform of the stock issuance registration system, and promoting the stable and healthy development of the capital market.
Reduced rates for active equity funds
In the past 10 years, the overall fee rate of the mainland public fund industry has shown a continuous decline, with the average management fee falling from 0.93% in 2013 to 0.56% in 2022.
However, the interest rates of different types of funds vary greatly, with equity funds being higher than bond funds, while active equity funds are higher, with an average management fee of 1.6%.
Except for active equity funds, the management fees of other major types of funds in mainland China are the same as those of overseas markets. In 2022, the management fees for mainland bond funds and passive equity funds will be 0.34% and 0.48%, respectively, and the relevant fees for US mutual funds will be 0.44% and 0.39%, respectively.
It is based on the reality that the rate level of mainland active equity funds is relatively high and the holding scale of individual investors is large, so considering the characteristics of the development stage of the industry and the needs of investors, the rate reform should be launched.
The adjustment is reasonable
Since the mainland public fund industry mainly relies on commercial banks, securities companies and other agency channels to expand customers, fund companies extract a certain proportion of trailing commission from the management fee and pay it to the sales agency as the consideration for the sales agency to attract and serve investors, so 1.6% is only the nominal average management fee of mainland active equity funds.
After excluding the trailing commission paid to the sales agency, the actual management fee rate averaged 1.1%, which is still higher than that of public funds in other overseas markets.
After this adjustment, the average management fee of mainland active equity funds will be reduced from 1.6% to 1.2%, which means that after excluding the trailing commission paid to sales institutions, the actual management fee will be reduced from 1.1% to 0.8%, which is close to the average management fee of 0.7% for US active equity funds.
Moreover, considering that some international similar markets generally charge an additional 0.6%-1.2% investment advisory fee on top of the management fee, the actual comprehensive fee rate of mainland active equity funds after reform will be lower than that of comparable global markets.