If you ever wonder why your bank advisor recommends active funds and structured products look no further than below. It shows that an equity fund that’s actively managed will sometimes cost you an extra 60bp (range 0-150bp), which the bank pockets. That’s in addition to transaction fees and custody fees. If we look at structured products we see that it’s not unusual for the bank to take 100bp (one time) in addition to the custody fees and transaction fees. If you have an advisor that creates tailor made structured products you’ll pay up to 200bp (one time) for that (I naively always assumed strategy creation and implementation is part of the service you should expect to be priced in transaction commissions and custody fees. I do either or, never both!). Most structured products also don’t last 5 or 10 years, so the one time fees do impact substantially!
This is the reason why I always recommend clients: let’s buy the underlying or copy the strategy of the active fund (which is easy as transaction costs can be minimised and publication of major fund holdings is often required by regulators). The only rational people who buy these kind of products are ones that can minimise taxes thanks to loopholes or who have discovered an active fund that has an exceptional strategy (rare!).