Best practice commitment will ensure superior returns, says Danish Federation
The Federation of Danish Investment Associations (InvesteringsForeningsRådet) has reacted to proposals published by the Danish Financial Supervisory Authority (Finanstilsynet) for improving investor returns by reiterating its members’ commitment to best practice, to maintain competitiveness against European peers.
Like a number of other markets, Denmark saw its local fund industry post a new record total AUM in 2013 – DKK1.385trn (€186bn) – following a 14% increase in AUM through the year. This followed research published by Morningstar, which suggested Danish, along with other Nordic based funds, offer some of the best asset weighted ongoing charges available in Europe – effectively meaning that the industry is run on a competitive basis when compared to some other European fund markets.
Danish Investment Associations remain among the best collective investments in Europe in terms of value generated for investors, said Jens Jørgen Holm Møller, managing director of the Federation (pictured).
“We want Danish investors’ returns in future to also be among the best in Europe.”
The Supervisory Authority, Finanstilsynet, has proposed “10 ways to lower costs and better returns” in a report published via its website: http://www.finanstilsynet.dk/~/media/Nyhedscenter/2014/Omkostningsunders%C3%B8gelse%202013.ashx
The report is based on resarch into 10 providers, which it says account for 70% of the Investment Association market: BankInvest, Danske Invest, Handelsinvest, Jyske Invest, Maj Invest, Nordea Invest, Nykredit Invest, SEBinvest, Sparinvest, and Sydinvest.
The gist of the report is that the Authority has suggested the boards of local Investment Associations are not maximising the opportunity to bring down costs and thereby improve returns for investors.
In particular, there are ways for variable costs to be pushed down, the regulatory authority suggests.
it is this conclusion that has caused it to propose 10 ways for the industry to think about how to lower costs, including:
– reducing variable costs such as commission and advisory
– setting cost targets relative to competitors
– seeking to better use economies of scale
– be more critical when it comes to choice of portfolio adviser
– use a stricter procedure for choosing portfolio advisers
– set performance targets relative to competitors
– react faster to poor performance
– determine responses to poor performance
– consider passive investing as an alternative to poorly performing active management
– evaluate the quality of the advice involved in the investment process
Møller described the work of the Supervisory Authority as useful input into the industry’s own work to institute best practice for those managing Investment Associations.
He said the Federation agreed that its members should only take on the necessary costs, but underlined the fact that cost levels in the local industry currently sit below the EU average.
“Danish Investment Associations offer competitive cost levels. The average investor with DKK460,000 invested in a fund save DKK1,000 annually by using a Danish Investment Association instead of an average European [fund],” he added.
And notwithstanding commitments to lower costs, the primary objective of local collective investments are to deliver the best risk adjusted return to investors.