Fidelity International has revealed details of how its performance related fee model, referred to as a ‘fulcrum fee’, will work.
There will be four key features in the new structure.
Fidelity will reduce the annual management charge (AMC) on the new variable management fee share class by 0.10%. Clients who remain in the old share classes will pay more on average then those who switch, due to this fall in fees.
The variable part of the fee will slide up or down based on how the fund outperforms or underperforms relative to its pre-defined market index, after all fees and charge. This scale will reach a maximum of +0.2% above the annual management charge (the ceiling) and go as low as -0.2% below the annual management charge (the floor).
The maximum and minimum fee levels are reached once the fund outperforms or underperforms the relevant market index by +2% or -2% on an annualised basis calculated over a three-year rolling period.
Importantly, the fee will only start to increase from the base level once the fund has beaten the market index after all fees and charges.
Fidelity provided an illustration (see below) of the variable management fee for an Oeic fund with a 0.75% AMC.
The example shows that a fund with an annual management charge of 0.75% today could go as low as 0.45% if it underperforms and as high as 0.85% if Fidelity outperforms the market index - only 0.1% above where the charge is today for outperformance, but 0.3% below for underperformance.
Subject to regulatory approval, the new structure will be launch on 1 March 2018 initially across the clean share classes of 10 active equity funds (12 share classes, see table below) in its pooled fund range (Oeics/Sicavs) representing a cross section of funds which account for nearly 17% of Fidelity’s total equity assets under management.
|Current OEIC Share Class Equivalent||Current LUX SICAV Share Class Equivalent|
|Fidelity Special Situations Fund W Acc||Fidelity Funds America - Y -ACC - EUR|
|Fidelity European Fund Fund W Acc||Fidelity Funds America - Y - ACC - USD|
|Fidelity Asian Dividend Fund W Inc||Fidelity Funds Emerging Markets Focus - I -ACC - USD|
|Fidelity Global Special Situations Fund W Acc||Fidelity Funds Emerging Markets Focus - Y -ACC - USD|
|Fidelity American Fund W Acc||Fidelity Funds European Growth Y - ACC - EUR|
|Fidelity Funds European Larger - Y ACC -EUR|
|Fidelity Funds World Y-ACC-EUR|
Additional share classes across the Fidelity funds range will be phased in at later dates. Clients with segregated portfolios including institutions and investment trusts will have access to an individually adapted version of the fee model.
Brian Conroy (pictured), president Fidelity International, said: 'We are passionate about giving our clients both choice and value, and we believe innovation in fee structures is essential if active fund management is to succeed going forward.
'Our variable management fee clearly aligns our interests to our clients. We believe this is a meaningful step and also one that we hope will be adopted by the wider asset management industry.'
However, Hargreaves Lansdown senior analyst Laith Khalaf is sceptical, saying while he appreciates the idea behind the move, it will prove 'complicated' for the retail market.
'Investors will understandably find it very hard to get their heads around the new charging structure, and it will be challenging to compare the potential cost of these new share classes with the current share classes, and indeed with competitor funds charging a more traditional fixed percentage charge,' he said.
'We think investors would prefer to know what they are paying as a simple annual charge, rather than having to resort to a spreadsheet to model the possibilities. If this variable fee structure were to proliferate across the fund management industry, with different caps, floors and variable charges applied by different fund groups, it would make life extremely difficult for UK investors.'
He added: 'What’s more, investors choosing active funds, including ourselves, expect outperformance from the fixed percentage fees they already pay. To that end, investors will naturally question why they should pay 0.45% for significant underperformance, when they can pick up an index tracker for as little as 0.06%.'