Marketing UCITS Funds in the EU

Platform fees will surprise fund managers

If you are thinking about forming a UCITS fund in the EU, it may interest you to know that EU distribution platforms expect to be paid a minimum fee equal to 50% of your management fee for allowing retail shares of your funds to be made available to their so-called sub-distributors. The sub-distributors are the banks and investment firms engaged by platforms to pro-actively recommend platform funds to their clients or invest in such funds on a discretionary basis for their clients.

The EU platforms themselves do not actively market fund shares and, as a result, give up as much as 90% of their fees to their sub-distributors. The sub-distributors may, in turn, rebate a portion of their fees to end-investors or, alternatively, charge end-investors up to a 5% sales commission, depending presumably upon the type of end-investor and/or size of investment. A UCITS fund manager has no influence over either arrangement, except that the amount of its give-up to a platform will affect the amount paid to the sub-distributors and thus the competitiveness of its funds vis-a-vis their peers on the platform.

For U.S. managers, the huge give-ups to EU platforms will also substantially raise the asset levels at which your UCITS funds are able to generate profits after all operating costs.