Ad valorem fee structures create an inherent conflict of interest between the owners of asset management firms and their clients, and erodes trust and confidence in the industry, argues Orbis Investments UK director Dan Brocklebank.
In the latest Portfolio Adviser video interview, Brocklebank also says fund selectors need to start demanding an alignment of interest between fund groups and the end investor – and how this can be a good screening tool when picking funds.
“It doesn’t strike me as being fair if the industry can do very well but clients cannot do very well and we see that all too often,” he says.
Brocklebank argues the fact that fees become revenues for asset management firms determines their business models and ultimately the incentive structure. “Incentive structures can go wrong and create completely perverse outcomes,” he says.
He also outlines Orbis Investments’ own fee structure and the reception it has received in the industry, but he accepts there is not one easy solution to the problem.
Watch the video above for more.
