Endowus returns S$2m of trailer fee rebates to clients

ROBO platform Endowus has rebated S$2 million in trailer fees to clients, in less than 2 years since it rolled out retail services in 2020.

Trailer fees are the portion of funds' annual management fees that are paid out to distributors. This portion could range between 20 and 70 per cent of the annual management fee, depending on the distributor's marketing clout.

In developed markets such as the UK, the payment of trailer fees - also called retrocessions - is banned as it is seen as a potential conflict of interest and may compromise independent advice.

Endowus was the first robo to operate on the basis of a 100 per cent trailer fee rebate to investors. The firm says trailer fees are typically about 0.75 per cent per annum for equity funds.

Endowus contends that if the trailer fees were returned to clients and put to work in diversified global markets, investors could have earned an additional 190 per cent on their investments over the past 30 years. This assumes the investment of the 0.75 per cent differential in fees, compounded over 30 years.

Endowus chief executive officer (CEO) Gregory Van said: "While banned in countries such as Australia and many parts of Europe, distributors collecting trailer fees from fund managers is still the norm here in Singapore. The practice is unfair to investors as it eats away returns and creates an undeniable conflict of interest as distributors are paid more to push certain funds over others.

"Endowus believes this has to change and we are leading by example. That is why we are so proud to have returned S$2 million of trailer fees back to our clients, effectively helping them to reduce overall cost, enhance returns and achieve a better investment experience."

Endowus, which has around S$1.5 billion in assets under administration, has sought to onboard the institutional or "clean'' share class of funds which are offered without trailer fees. For funds with only the retail share class, the trailer fee is rebated.

To date, about a third of the over-200 funds on the platform are institutional or clean-fee funds. The clean-fee funds include those managed by Lion Global Investors (LGI), BlackRock and Amundi, among others.

Samuel Rhee, Endowus chairman and chief investment officer, hopes the firm can eventually return "tens of millions'' of dollars worth of trailer fee rebates back to clients.

"We will stay on track to bring unbiased advice, greater access to best-in-class funds at the lowest fee achievable, so we can provide our clients with the greatest chances of success in meeting their long-term financial goals. That is our mission and this can be accelerated by the fee-only service we provide and the ability to lower cost through our proprietary technologies.

"We hope these global best practices introduced by Endowus can be adopted by the industry more widely and trailer fees can eventually be eradicated completely here in Singapore.''

LGI CEO Gerard Lee said: "Endowus has been at the forefront of introducing best practices with their 100 per cent trailer fee rebates and leading innovation through its digital wealth platform. LGI shares many common values such as our fiduciary duty of always putting our client's interest first and helping Singapore investors achieve better outcomes. This is why (we) have also been working collaboratively with Endowus to launch new and better low-cost solutions for the Singapore market across the cash, CPF (Central Provident Fund) and SRS (Supplementary Retirement Scheme) segments.

"We are delighted that Endowus is putting millions back into investors' pockets and we will continue to work together to trailblaze the best practices for the industry here in Singapore."

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