Fidelity to introduce performance-based fund charges

Fidelity has announced it will change the way it charges fund investors with the

Fidelity, one of the world’s biggest asset managers, has announced it will change the way it charges fund investors by introducing a performance-based fee model. 

Under the so-called 'fulcrum fee' arrangement, the amount Fidelity charges investors in any of its active equity funds will depend on how the fund has performed. If the fund has underperformed its benchmark index, for example the FTSE All Share for a UK equity fund, investors will see their fund fees reduced. On the other hand, if the fund outperforms, investors will pay more.

The outperformance fund charge will be subject to a cap, but at this stage it is unclear what this will be. Similarly, there will be a minimum amount levied for underperformance, meaning that the model is not a ‘no performance, no fee’ structure.

Brian Conroy, president at Fidelity International, says the changes have been brought about in response to the growing debate around the value of active fund management. ‘We want to demonstrate real commitment to our active management capability. We will move away from a flat fee model and get paid according to how well we do for our clients,’ says Conroy.

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‘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.’

In June, when the Financial Conduct Authority (FCA) published its final report of its asset management study, the City watchdog noted a lack of both competition and transparency in the fund management industry.

In particular, the FCA took aim at ‘weak price competition’. This is evidenced by the fact that when it comes to fund charges, asset management firms tend to charge very similarly, with the vast majority of active fund displaying an ongoing charges figure (OCF) of between 0.75 per cent and 0.1 per cent.

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While in other industries competition helps to reduce costs for consumers, this is not commonplace when it comes to fund management; as a result, the FCA notes, the asset management industry enjoys ‘high levels of profitability’. 

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