Key Trends Shaping BNY Mellon's Asset Management Fee Structure

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BNY Mellon's ( BK ) asset & wealth management business is among the leading global asset managers, serving a variety of institutional and retail clients. The firm made a number of acquisitions last year to support this business segment. BNY Mellon competes with other big-name firms like State Street ( STT ), JPMorgan Chase ( JPM ) and Citigroup ( C ) in this space.

BNY Mellon's asset & wealth management business is its second most valuable segment (just behind asset servicing), representing about 26% of our $35.76 price estimate for BNY Mellon .


Below we highlight 2 key trends that will impact the fees that asset managers are able charge for their services in the coming years.

1. Changes in Asset Management Fee Structure

The recent financial crisis has resulted in more transparency in the pricing of asset management services. As a result, the performance fee (which now looks at a longer investment horizon than before) has increased while the advisory fee (simply charged as a percentage of AuM) is facing downward pressures for most asset classes.

2. Polarization of New Inflows between True Alpha and Cheap Beta

Asset management strategies have traditionally commanded markedly different advisory fees for active and passive (indexed) investments, with active management fees naturally being much higher. The financial crisis of 2008-09 has resulted in investors seeking greater transparency in not only the risks associated with financial assets but also the investment strategy followed by the asset manager.

Since most active investments haven't consistently beat their benchmark over the last decade, investors are now increasingly splitting investments between 'true' alpha investments (comprising of alternate investments) with high advisory fees and 'cheap' beta investments (comprising of indexes) with markedly lower advisory fees.

See our complete analysis of BNY Mellon's stock here



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: BAC , BK , C , JPM , STT

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