Cost Model
The cost model is configured by cost attributes for each portfolio model and financial instrument in the investment universe. Cost information is defined in the advice engine, to be able to project and show both the cost and the effect of cost in the portfolio analytics during the advisory session. Read more about Portfolio Analytics
The cost model on Deep Alpha Advisory Platform (DAAP) is customizable and offers a wide range of configurable cost fields. The objective of the cost model is to have a basis that we can use for cost projections across the platform. The cost we project in DAAP are the ex ante cost projections.
Read more about Portfolio Model Read more about Investment Universe
Classification of the cost fields are divided into following categories:
- Fund and platform fees
- Custody fee
- Advisory purchasing fee
- Advisory onboarding fee
The fields are presented in more details in the section below.
The objective of the fund and platform fees is to calculate the costs related to the funds and the general advisory of the funds/portfolios. This cost element can consist of a combination of fund related costs and advisory related costs, and they can be configured on a fund level. The structure is illustrated in the table below and each component is described more detailed below the table:
This field is used to illustrate the management fee charged to the fund. We offer flexibility related to what input you want to use here. As a user of our cost calculation you can select between the following:
- Use Morningstar cost field: KIID-ongoing charge
- Set the value for the fund directly. This is relevant if you offer custom products or have individually agreed fees, that differs from what is found in Morningstar.
This field is used to illustrate the purchasing fees charged by the fund. We offer flexibility related to what input you want to use here:
- Set the value for the fund directly. This is relevant if you offer custom products or have individually agreed fees, that differs from what is found in Morningstar.
This field is used to illustrate the transaction costs charged in the fund. This is the costs that are charged on a regular basis and should not be confused with the fund purchasing fee. We offer flexibility related to what input you want to use here:
- Use Morningstar cost field: TransactionCost
- Set the value for the fund directly. This is relevant if you offer custom products or have individually agreed fees, that differs from what is found in Morningstar.
This field is used to illustrate any return comissions that are paid back to the investor. This is optional to use and for calculation purposes we assume that it is paid back to the investor. Usage of this field requires that you input the fund return comission paid to client per fund.
This field is used to illustrate any return comissions that are returned to the provider of the fund. This is optional to use and will not affect the total cost of the fund. However, by using it you will be able to show in analysis how much you as a fund provider earn from return provisions. Usage of this field requires that you input the fund return comission paid to client per fund.
This field is used if you offer products that contains insurance elements and therefore contains insurance related costs. Typically, this accounts for insurance wrappers / Unit-link products. You can configure 1 to N insurance cost and each fund can be assigned to an "insurance cost category"
The insurance cost is an age_step_model. This means that you can configure step models for age. For projections we will look up the correct age of the investor in the step model The reason for this is that we observe the insurance cost typically increase over the lifespan of the investor.
Each insurance cost categoy can be a step model as illustrated in the table below:
Step start (age) | Step stop (age) | Insurance Cost |
|---|---|---|
0 | 35 | 0.001 % |
36 | 69 | 0.005 % |
70 | | 0.010 % |
Insurance cost can only be configured as a simple step model and can be denoted in both amount and %.
Platform fee is used to illustrate the fee you charge for giving advice to the investor. In order to have flexibility to have different platform fees for different funds we use "Platform fee categories". In the configuration of the cost model, you can configure 1 to N platform fee categories. Each fund is then assigned to one of the defined platform categories.
Each platform fee category can be a step model as illustrated in the table below:
Step start | Step stop | Platform fee |
|---|---|---|
0 | 1.999.999 | 1 % |
2.000.000 | 4.999.999 | 0.75 % |
5.000.000 | | 0.50 % |
Furthermore, you can define whether the step model is single step model or a multi step model. With platform fee category in the table above this will be the calculations, depending on the step model type:
Invested sum = 10.000.000
- Single step model = 0.50 %
- Multi step model = (20 % x 1 %) + (30 % x 0.75 %) + (50% x 0.50 %) = 0.68 %
If you want to use the same platform fee across all products you will define a platform fee category with one level.
This field is used to illustrate any performance fee you charge your customers. This will be assigned to each of the products in the universe. The input you assign to each of the product is the expected performance fee for the product. This is an example that illustrates this: \
- Expected excess return product = 1 %
- Performance fee level= 15 %
- Performance fee = 0.15 %
In the case above, performance fee you should input into the field = 0.15 %
The all in fee field is used to if you want to set a max fee you can charge a fund. In other words, you can cap how much you will charge your investors. We have functionality in DAAP that compares the sum of fund management fee, platform fee and performance fee with the defined max. If the value is greater than max fee we should shorten according to the following system:
- Shorten performance fee
- Shorten platform fee
We do not shorten fund management fee.
Custody fee is used to illustrated annual fees you charge your investors for maintaining and operating the investment portfolio. This is configured as a step-model and you can turn on and off whether it is a single- or multi step model.
The input value you put in is annual values and for calculation purposes we assume that it is deducted on a monthly basis, end-of-month. Values can be denoted as % and amount. The tables below shows examples on how this can look like:
Custody fee where type = Amount
Step start | Step stop | Custody fee |
|---|---|---|
0 | 9.999 | 0 |
10.000 | 999.999 | 350 |
1.000.000 | | 700 |
Custody fee where type = %
Step start | Step stop | Custody fee |
|---|---|---|
0 | 9.999 | 0.1 % |
10.000 | 999.999 | 0.05 % |
1.000.000 | | 0.02 % |
The advisory purchasing fee used to illustrated one-time fees you charge your investors each time they are buying an investment product. This field is used if you charge your investors with this fee on all deposits made, in the beginning of the saving plan and for future deposits. This is configured as a step-model and you can turn on and off whether it is a single- or multi step model.
The onboarding fee is used to illustrated one-time fees you charge your investors for implementing the investment advisory process. This field is used if you charge your investors with this fee on the first deposit only, as a start-up fee. This is configured as a step-model and you can turn on and off whether it is a single- or multi step model.
We have an integration against and a data feed from Morningstar. If you want to use our data feed Morningstar for the cost fields, you need an agreement with Morningstar. Contact your Quantfolio representative if you have any questions.
