Fidelity  

Key concerns about Fidelity's new fee structure

Key concerns about Fidelity's new fee structure

Questions have been asked by investment advisers about how Fidelity's new fee structure will work in practice.

Last week Fidelity announced its intention to move all of its funds to a new share class with “variable” fee structure, with a refundable performance fee.

The company said investors who move to this new share class will pay “significantly” lower fees, but because Fidelity will not be absorbing fund research costs, those who remain on the existing share classes will pay more.

The performance fee will only be levied if the funds achieve performance that is superior to that of the benchmark.

If performance subsequently dips below the benchmark, the performance fee will be returned to investors.

The company justified its decision not to follow in the footsteps of rivals such as JP Morgan Asset Management and Artemis and absorb research costs by stating that as it has clients both within and outside the regions covered by Mifid regulations, and so if it were to absorb the costs, it would be effectively charging different prices to clients of the same funds.  

Fidelity declined to disclose what the performance fee level would be, or indeed what level the fixed portion of the fee will be.

Ben Yearsley, a director at Shore Financial Planning, said performance fees have historically been  a concern for him because too many in the past have been "heads the fund manager wins and they also win on tails."

So he said the “fundamental questions” are what time period the performance fee will be based on and how subsequent refunds will be calculated.

He said: "It is an interesting move for Fidelity to move an entire range to essentially a performance fee structure.

"While it sounds interesting, it is difficult at this stage to be for or against it as they haven't stated their fee range nor the measurement period.

"These are crucial aspects as well as the benchmark.”

Adrian Lowcock, investment director at Architas, said: “Performance fees add complexity for investors as they will not know what the charges are at the point of investment.

"Performance fees also mean investors are effectively charged more for a fund manager being good at their job.

"However, they can work if the structure of the performance fee means the interests of the fund manager and the fund group are aligned with those of their investors. It will be interesting to see how Fidelity approach this.”

david.thorpe@ft.com