Economy

Fidelity to introduce performance-based fund charges

Fidelity to introduce performance-based fund charges”

The company said the annual management charge will be cut across all its funds, while performance fees will be introduced but will be "refunded" if, in future, the funds deliver performance that is the same, or worse, than the returns achieved by the benchmark.

The group said its "baseline" management fee, levied when its funds perform in line with the benchmark, would be lower than its current charges.

Any rise or fall would come irrespective of whether the fund posts a gain or loss in the period charged, global CIO for equities Dominic Rossi told reporters this morning.

Fidelity now plans to introduce the new charging structure on the first funds in Q1 2018 before rolling it out further.

Asset manager Fidelity International said on Tuesday it will set a new pricing model for its active equity funds that will charge investors lower management fees if a fund underperforms or simply tracks its benchmark. We will move away from a flat fee model and get paid according to how well we do for our clients.

Fidelity's proposed fulcrum fee equity charging structure.

Brian Conroy, president at Fidelity International said: "Where we deliver outperformance we will share in the upside and where we deliver benchmark performance or less clients will pay less than they now do". The exact level of fees, as well as the floor and ceiling, would be agreed with fund boards, distributors and regulators in the next few months, he said.

He added: "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".

"Fidelity's approach is fairly unique and original, differing from that of many of their peers who have chosen to absorb research costs within their businesses", said Adrian Lowcock, investment director at Architas. However, the group insisted this would be more than compensated by the other fee changes.

Fidelity will also reduce its annual management charge (AMC) as it announces clients will pay for research under Mifid II regulation coming in on 3 January.

Conroy said: "Having looked at the implications of upcoming regulation, as well as taking into account feedback from the United Kingdom regulator in its recent market study on the lack of pricing innovation in our industry, we believe that a far more fundamental change to how clients are charged needs to be instituted".



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