The amendments to the directive, made by the European Parliament’s Economic and Monetary Affairs Committee, state that a manager’s variable pay should be measured against a performance benchmark over at least one year.
This could result in remuneration being slashed in the event of underperformance, or raised if a manager beats the benchmark.
The Ucits V directive also proposed that remuneration paid to fund managers be “consistent with sound and effective risk management” and with investors in mind. Extra fees for investors should be “exceptional” because they contravene the principle that pay correlates to performance.
The changes to the directive are under discussion in the European Parliament, and could be implemented by 2015.
Tristan Freer, director of Cheltenham-based Bank House Investment Management, said: “Clients only care about absolute performance – not if a fund has beaten the benchmark but still made losses. Passive funds are much cheaper and don’t have that element of human error.”
Gina Miller, co-founder of wealth management firm SCM Private and head of the True and Fair Campaign, said: “The returns that consumers get from funds are more closely related to the fund manager’s fees rather than the remuneration of the fund managers, which is not paid by the fund. Increasing independent supervision of the fund with at least 75 per cent independent directors would tackle the problem effectively.”
Industry view
Daniel Godfrey, chief executive of the Investment Management Association, said: “The best way to assure customers remuneration is aligned to long-term outcomes is through multi-year assessments or deferrals and putting policies in the public domain. People should articulate how they think performance should be measured and, while there needs to be clear metrics such as a benchmark, hopefully this directive won’t be too rigid or structured.”
