Russia’s trade body calls for ban on low service fees
Russia’s fund management industry, represented by the National League of Management Companies (NLMC), is calling for the introduction of a minimum fee for financial services, as service providers suffer from continued downward pressure on remuneration.
NLMC’s letter to Russia’s Ministry of Finance states: “It is common for domestic market participants – brokers, asset managers, depositories and other service providers – to lower their fees to one ruble per month [€1 equals approximately RUB40] for services that are worth hundreds of thousands.”
Sergey Zakharov, head of investments at Russia’s Solid Management, told Russia’s news source RBK daily there is a conflict between private and state owned asset managers participating in the manager selection process.
State firms often reduce their fees significantly to make their offering more competitive, he said. They can do this, because their operations are backed by the government, therefore they are not as focused on profits as private firms.
Their actions do make their proposition more attractive, which is hurting private businesses. Private firms are being “pushed out of the market,” Zakharov said.
Often, the sole selection criterion in manager selection is the management fee.
NLMC’s president Dmitry Alexandrov gives the example of the Skolkovo endowment fund, established by 2007 in Russia to provide long-term financing for charity and socially sensitive projects, where this was the case.
Similarly, competitions for managers of pension fund money and the military mortgage trust in Russia are primarily based on fees.
Alexandrov is concerned downward pressure on charges may drive managers, as well as other market participants, such as brokers and depositories, out of the market.
He told RBK: “It is necessary to introduce a minimum fee level, below which companies will not be allowed to reduce their offers in open competitions.”
But not all market participants agree this is a fair and appropriate regulatory measure. Some, including Yuri Mintsev, managing director of Otkritie Brokerage House, believe it is a “non-market mechanism,” and therefore unsuitable.
A similar initiative has already been proposed a couple of years ago by the Russian National Association of Securities Market Participants (NAUFOR), but the proposal was declined by the Federal Antimonopoly Service of Russia (FAS).
At the time, FAS was concerned that setting a minimum fee would create a fertile ground for price fixing.