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As fees face downward pressure in response to tech disruption, competition and greater scrutiny by clients and regulators, the long-term result will likely be greater industry innovation—not the widespread launch of zero-fee funds.

Research from Boston-based Cerulli Associates that looked at the European market indicates zero-fee funds are unlikely to become commonplace there soon. While the cost of investing will continue to fall—with scale and competition being the main drivers—the process will take time, considering there are more than 2,600 funds in play in the U.K. alone, said André Schnurrenberger, a managing director at Cerulli, in a release. (The research findings are discussed in the January 2019 issue of The Cerulli Edge.)

Instead of zero-fee funds, Cerulli expects more managers will innovate and play a leading role in negotiating lower costs for clients.

For example, “combining a zero annual management fee with a performance-fee mechanism may be a more viable and sustainable pricing model,” said Schnurrenberger in the release. “Value for money, the ability to offer bespoke solutions, and a willingness to work with clients will be paramount.”

Read: Feeling squeezed by pricing pressure? Here’s what to do

Here in Canada, speakers at IFIC’s annual leadership conference in September 2018 also cited innovation as a key way that the industry will move forward. While zero- and low-fee funds have gained popularity in both Europe and North America, meeting client needs and innovation are what move the industry, said Kevin Gopaul at the conference, where he was a panellist. Gopaul is head of BMO Global Asset Management Canada.

“I don’t think low cost is innovation, necessarily,” he said. “Saving five or 10 basis points is not going to help you retire 10 years earlier.”

Gopaul also questioned what zero-fee actually means. Likewise, Cerulli notes that firms offering zero-fee funds still have overhead to cover, either by stock lending in the product itself or via an element of cross-subsidization.

“Zero-fee passive products are most viable when the firm in question owns the index being tracked,” said Schnurrenberger in the release. “Otherwise the license fees it needs to pay are likely to require some level of fee to be charged, which means that the range of viable products is limited for this pricing model.”

He adds that regulators won’t allow cross-subsidization of zero-fee products by fee-paying investors, or will at least require full disclosure.

Also of note when it comes to client retention, Cerulli research in the U.S. finds that advisors must play a long game. Long-lasting client-advisor relationships require “a constructive approach to address fluid needs that change over an extended period,” says the release.