The View | Will Fidelity’s ‘generous’ offer of performance-based fees be enough to attract investors away from index-linked funds?
Regulatory pressures are also behind the fund manager’s decision to only levy charges for funds outperforming their benchmarks instead of a flat fee
Paying for performance has a nice ring to it – does it not? Fidelity, one of the world’s biggest fund managers, has decided that instead of charging a flat fee regardless of performance it will step up its competitive offering by only charging a management fee for funds outperforming their benchmarks.
However, Fidelity is a fund manager so this “generous” offer comes with caveats and small print, but we will deal with that later.
The whole question of fund managers’ fees is rising rapidly to the top of regulators’ agendas.
The European Union has already acted to enhance fee transparency and the regulator in the UK is considering even tougher rules. The reason for this activity is increasing awareness of costs to investors. The European regulatory authorities found that between 2013 and 2015 managed-fund investors lost 29 per cent of their returns as a result of fees, one-off charges and inflation.
No wonder managed-fund business investors are heading off in droves to index-linked funds, which have very low management fees and are performing way better than their rivals in the stock-picking business. Research from S&P Dow Jones shows nearly every company in the managed-funds arena failed to beat its benchmarks for the past decade.
The worm is slowly turning and managed funds are performing a lot better this year, but this improvement is doing little to move customers away from the tidal wave carrying index-linked funds.