Fidelity introduces performance-related fee for active equity funds
Fidelity International has announced it is getting rid of its traditional flat fee model, replacing it by a variable management fee for its active equity funds.
The move involves both a reduction of the annual management fee and a change to a variable management fee which will depend on the fund’s performance relative to a benchmark.
The new performance-related management fee (also known as a ‘fulcrum fee’) will operate as a sliding scale, acting as a two-way sharing of risk and return. The company said it will only share in the upside during outperformance periods, while during those of benchmark level performance or even underperformance, there will be lower fees. The fees clients pay will sit within a range and will be subject to a pre-determined maximum and minimum.
Brian Conroy, head of Fidelity International, said: “We will move away from a flat fee model and get paid according to how well we do for our clients. These changes will more closely align the performance of our business with the performance of our clients’ portfolios and deliver what we believe clients and regulators are looking for. Our fee structure will give back for underperformance of the benchmark, whereas others do not.”
Fidelity said the move aims to give a response to the growing debate around the value of active management and transparency on charging structures.
The company also announced it would charge its clients on the costs of external research once MiFID II is implemented at the start of January 2018, and highlighted the debate around charging has become too focused on research costs rather than overall costs regarding asset management services.
Conroy, head of Fidelity International, added: “We believe that the CSA-RPA model is a flexible, transparent and globally consistent way to access the range of external inputs required to support our active management process.
“For those clients who simply want to drive down costs and do not want to pay for the active approach, we will be extending our successful range of low cost index funds on a global basis, accessible to all clients.”