Global fund giant Fidelity has announced a move to a “variable fee” structure on its funds over the coming months.
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.
If performance fees are clawed back, the company said it will mean investors paying less than they do under the charging structure that is in place right now.
The new charging structure will be introduced initially via a new share class in the funds, but Brian Conroy, president of Fidelity International, said the expectation is that investors will switch to the new share class in order to avoid paying higher fees.
He said the new charging structure should result in "significantly lower" fees for investors.
Those investors who do not switch to the new share class will pay more than they do now because, concurrent to the announcement on fees, the company said it will not be absorbing research costs, which under incoming European Mifid II regulations, have to be charged for explicitly.
Mr Conroy said the the fall in charges on the new share class will be greater than the charge levied for research, so investors in the new share class will still be paying less, and those in the existing share class will pay more.
The fees on each fund will have a pre-determined cap on how high they can go, and floor on how low they can go.
He justified the decision not to follow in the footsteps of firms such as Aberdeen Standard Life, which are absorbing research costs, saying it is due to Fidelity funds having investors from both inside and outside of the regions where Mifid regulations apply, and he feels it is unjustified to charge less to investors in different geographies based on regulatory changes.
The new share classes will begin to be introduced as early as January 2018.
Mr Conroy said the changes are in response to pressure throughout the industry for active fund charges to be “more transparent and better value”.
He said the “typical performance fee is widely disliked by investors as it is essentially a one-way bet, with all the upside to the fund manager, these changes mean a greater sharing of the risks and rewards between the fund manager and the investor.”
Mr Conroy said he expects Fidelity’s example to be followed by others in future.
He refused to give any numbers for what the new fee levels would be.
David.Thorpe@ft.com
