The introduction of a performance-based ‘fulcrum’ fee is more a reaction to the upcoming implementation of Mifid II regulations and the Financial Conduct Authority’s recent market study into the asset management industry, Fidelity equity CIO Paras Anand said.
He said the fee structure, where clients pay more when a fund outperforms but less when it underperforms net of fees, would align Fidelity more with the needs of the end client.
The trend towards a “race to the bottom” for asset management fees “should be avoided”, Anand added.
Fidelity’s variable fee
The fund firm announced it would revolutionise the way it charged retail clients investing in 10 of its equity funds in October.
It has now released further details into the pricing model, titled the Variable Management Fee, which will see new share classes launched across the 10 Oeic products, accounting for 17% of its total AUM.
The annual management charge in the new variable fee share class will be reduced by 0.1%, from 0.75% to 0.65%.
The variable fee will move depending on whether a fund under or outperforms its benchmark or comparative index, Fidelity added, reaching a maximum of 0.2% above the AMC or -0.2% below the AMC.
The fee will only increase once the fund has beaten the index or benchmark net of all fees and charges and will be calculated on a rolling three-year basis.
Additional funds will be phased into the fee model following its initial launch on 1 March 2018, and clients with segregated portfolios and investment trusts offered adapted versions of the model, too.
Anand said: “For any client the returns of active management are realised through long-term investing.
“We believe that this new fee model allows us to demonstrate our value proposition while sharing in the cost during periods of underperformance which all active managers, even the best, experience from time to time.
“We hope, therefore, that this goes some way to incentivising clients to consider the value of active investing over the long term.”
Mifid research payments
The October announcement also confirmed Fidelity would buck the industry trend and charge clients separately for research once Mifid II unbundling rules come into effect in January. It said it was setting up research payment accounts (RPA) to cover research costs for clients affected by Mifid II.
Lowering the AMC by 0.10% on its funds is designed to offset the costs for clients.
Fidelity said on Wednesday: “In October, we also committed to reducing the annual management charge in the variable fee model by more than the cost of third-party research. This stands at 0.0228% across our funds so the reduction of 0.10% on the annual management charge is more than four times greater than this.”
