The structure of a mutual fund manager's income is typically a salary plus a performance bonus. A 2012 study compiled by Ma, Tang and Gomez showed that 75% of mutual fund advisers explicitly receive compensation from fund performance, and this compensation structure is more prevalent with larger funds. The top fund managers in the industry have been known to bring in $10 million to $25 million per year in exchange for employing envious stock-picking skills. Fund managers receive additional income based on the total assets under management. John Montgomery is the manager of Bridgeway Capital Management, and his self-reported income in 2007 was $603,000. Montgomery's disclosure of his income is rare for mutual fund managers, however.

The high salaries of mutual fund managers are more often subject to speculation than reporting. The lack of transparency in these matters was part of the motivation behind protests against the financial sector and Wall Street in the United States in 2011.

Looking to Mutual Fund Fee Structure for Salary Clues

Skimming a mutual fund’s prospectus further supports the perceived lack of transparency. In these lengthy documents, there is no simple language used to directly state the amounts paid to fund managers for their advisory services. The statement of additional information offers investors and the public the most details on this information. It is not made public to protect fund managers, but this does not account for the sparse language used in overall reporting of salaries. More likely than not, a majority of a fund manager’s income is derived from bonuses rather than his base salary.

There is a significant disparity in the average annual income of mutual fund managers based on a firm’s principal line of business. A survey conducted by Russell Reynolds Associates revealed that fund managers at banks make an average of $140,000, while mutual fund managers at insurance companies make $175,000. Fund managers at brokerage firms make $222,000, and mutual fund companies’ mutual fund managers make an average of $436,500. Managers working for larger funds make significantly more, which is why some people cite the salaries of mutual fund managers as being in the millions. Managers of growth stock mutual funds earned between $1 million and $3 million in 2008 before the financial crisis. Those figures have dropped since that time, but rising compensation for mutual fund managers is likely to gain strength as the U.S. economy improves. In the past 10 years, investment in mutual funds hit a low in 2008 in the United States with total investments at $1.3 trillion. Investing has increased 70% as of 2014 to a total of $2.2 trillion.

Star Performers

Will Danoff manages Fidelity Contrafund with a net asset value (NAV) of $105 billion as of November 2015. The fund is the largest actively managed equity mutual fund in the United States. The Fidelity Contrafund's performance is unique from that of other funds in that it has outperformed the Standard & Poor’s 500 index on several occasions. Being the manager of a staple fund requires abnormally stringent due diligence efforts from Danoff, who communicates with over 1,000 companies a year to make the portfolio selections that support the fund’s success. A large part of his time is spent researching current fund holdings. He has been the fund’s manager for 25 years after taking the role in September 1990.

The Fidelity Contrafund listed its management fee as 0.49% in February 2015. When an investor purchases $10,000 shares in the fund, $49 goes toward Danoff’s and the other investment advisers’ compensation. The statement of additional information in the fund’s prospectus lists Danoff’s compensation as including an annual base salary, a bonus and equity-based compensation. Specifics on compensation structure can vary widely from fund to fund to manage compensation packages and further limit the transparency of income data. Mutual fund managers often make 1% of total assets under management. Danoff’s annual compensation is well over the average of $436,500, and it is well over $10 million, but Fidelity does not benefit from investors, the U.S. government or other Fidelity fund managers knowing the specific number.

An Expanding Career

As confidence in the American finance sector continues to strengthen in response to an overall strengthening economy, the salaries and compensation packages of mutual fund managers are likely to coalesce to inflation-adjusted levels as seen prior to 2008. While mutual fund managers earn less annually than hedge fund managers (the top hedge fund managers reported making billions per year from sizable management and performance bonuses), mutual fund management is typically a more stable career. The likelihood of being fired due to structural changes in the company or poor fund performance is lower overall in the mutual fund management role. This, however, does not mean being a manager of a large mutual fund in the United States is a safe role; the job involves high pressure and is highly demanding, and fund managers are shifted out quickly from the industry from poor past performance of managed funds.

Investments in American mutual funds have regained exponentially since 2008, perhaps more than would otherwise be thought based on the disastrous investment implications that mutual funds had on the American economy and individual retirement portfolios. Institution and consumer retail investment into financial instruments make the future potential for new mutual funds to be operated by banks, insurance companies, mutual fund companies and brokerage companies more viable. All of these firms are looking to hire competent individuals to successfully select equities that can perform against indexes.

While mutual fund companies may be the most selective when choosing candidates for future portfolio managers, insurance companies, banks and brokerage firms offer more leeway in terms of prior employment history and choice of educational institution. The financial services industry employs a relatively short-term model in picking out talent for these positions, with new managers given one to three years to develop performance in funds before a different individual is offered a chance at management. The likes of Will Danoff and other long-time fund managers have kept their positions long term by repeatedly performing well.

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