The high salaries of mutual fund managers are more susceptible to speculation than reports. The lack of transparency on these issues was part of the motivation behind the 2011 US protests against the financial industry and Wall Street. John Montgomery of Bridgeway Capital Management told Bloomberg in 2017. Montgomery is one of the few mutual fund managers to disclose his salary-his salary in 2011 was $626,639. He has not publicly released his salary recently, although he publicly stated that the income he takes home is only 7 times the income of the company’s lowest-paid employee.
If you skim, the prospectus for mutual funds further supports the perception that there is a lack of transparency. In these lengthy documents, simple language is not used to directly state the amount of advisory services paid to fund managers. The additional information statement provides investors and the public with the most details, although it is still not much. It did not make it public to protect fund managers, but it did not account for the sparse language used in the overall salary report.
How to break down the salary of mutual fund managers
The income structure of mutual fund managers is usually salary plus performance bonus. A February 2018 study of 4,500 mutual funds was published in Financial magazine It shows that 75% of mutual fund advisors clearly get compensation from fund performance, and this compensation structure is more common in larger funds. As we all know, the top fund managers in this industry bring in 10-25 million U.S. dollars in income each year in exchange for enviable stock selection skills. Fund managers receive additional income based on the total assets under management.
As of October 2018, Salary.com reported that the annual base salary of portfolio managers ranged from $65,589 (for those with less than two years of experience) to $135,153 (for senior positions). However, it is more likely that most of the fund manager’s income comes from bonuses rather than basic salary.
The average annual income of fund managers also varies with the type of financial institution. According to a survey conducted by Russell Reynolds Associates, the average annual salary of fund managers in banks is US$140,000, while the annual salary of mutual fund managers in insurance companies is US$175,000. The annual salary of the fund manager of the brokerage company is US$222,000, and the average annual salary of the mutual fund manager of the mutual fund company is US$436,500.
Will Danoff manages Fidelity Contrafund (FCNTX), the largest actively managed equity mutual fund in the United States, and as of September 2018, its portfolio is worth US$135 billion. Fidelity Contrafund’s performance is different from other funds. Its performance is better than the S&P 500 index on the list many times. As the manager of major funds, Danoff needs extremely strict due diligence work. He communicates with more than 1,000 companies every year to make portfolio choices that support the success of the fund. Most of his time is spent researching current fund holdings. He has been the manager of the fund since September 1990.
The current prospectus lists the management fee as 0.60%. This means that when investors buy $10,000 in fund stocks, $60 is used to pay Danov and other investment advisers. The additional information statement in the fund’s prospectus lists Danoff’s salary, including annual base salary, bonus and equity compensation. The details of the compensation structure may vary from fund to fund to further limit the transparency of income data. Mutual fund managers usually manage 1% of total assets. This means that Danoff’s annual salary is much higher than the average US$436,500 and far more than US$10 million, but Fidelity does not benefit from investors, the US government or other Fidelity fund managers who know the specific numbers.
An ever-expanding profession?
Although the annual income of mutual fund managers is lower than hedge fund managers (top hedge fund managers report that they earn billions of dollars from considerable management and performance bonuses each year), mutual fund management is generally a more stable profession. The probability of being fired due to changes in the company’s structure or poor fund performance is generally lower in mutual fund management roles. However, this does not mean that it is easy to be a manager of a large mutual fund in the United States; this job is stressful and demanding, and the fund manager is quickly transferred from this industry from the poor performance of the fund in the past.
Since the 2008 financial crisis, investment in U.S. mutual funds has rebounded exponentially, which may be more than imagined based on the disastrous investment impact of mutual funds on the U.S. economy and individual retirement portfolios. The retail investment of financial instruments by institutions and consumers makes the potential of new mutual funds operated by banks, insurance companies, mutual fund companies, and brokerage companies more viable in the future. All these companies hope to hire capable people to choose stocks that can successfully beat the index-given that human managers face competition from robo-advisors and passively managed funds that reflect these indexes, and the fees are much lower, this is a growing trend. The bigger the challenge.
Although mutual fund companies may be the most selective in selecting candidates for future portfolio managers, insurance companies, banks, and brokerage companies provide more leeway in the selection of previous work experience and educational institutions. The financial services industry uses a relatively short-term model to select talents for these positions, and new managers have one to three years to develop fund performance before they get management opportunities. Will Danoff and other long-term fund managers have kept their positions by repeatedly performing well.