Fidelity unveils details of new performance fee model

Fidelity International has published details on its “truly innovative” performance fee structure it recently announced in a major shake-up move.

In October, Fidelity said it will introduce a fulcrum fee whereby the manager will charge a higher fee when it delivers outperformance net of fees, but will be lower if performance meets or is below the benchmark.

Fidelity says the fee system better aligns the firm’s and clients’ interests and is intended to promote the value active management, which has been facing challenges it “can no longer ignore”.

As a result of the fee changes, there will be a reduction in annual management charge on the new variable management fee share class by 0.1 per cent.

In relation to the variation of performance, the fee will slide up or down in relation to how the fund outperforms or underperforms versus its pre-defined market index, after all fees and charge.

This scale will reach a maximum of +0.2 per cent above the annual management charge and go as low as -0.2 per cent below the annual management charge.

The maximum and minimum fee levels are reached once the fund outperforms or underperforms the relevant market index by +2 per cent or -2 per cent on an annualised basis calculated over a three-year rolling period.

Fidelity says the fee will only start to increase from the base level when the fund has beaten the market index after all fees and charges.

Changes will come into effect on 1 March 2018 across the clean share class of 10 active equity funds in its pooled fund range, representing nearly 17 per cent of Fidelity’s total equity assets under management.

In the example if a fund with AMC of 0.75 per cent goes as low as 0.45 per cent if it underperforms and as high as 0.85 per cent if it outperforms the index, only 0.10 per cent above where the charge is today for outperformance but 0.30 per cent below for underperformance.

Commentators have questioned whether Fidelity’s approach will really improve value for money or reduce complexity for investors, as a number of investment firms lower their own fund fees in response to regulatory pressure and the rise of passives.

Fidelity International president Brian Conroy says: “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.”

Conroy says Fidelity hopes the new fee system will be adopted by other asset management companies.

Fidelity chief investment officer, equities for Europe, Paras Anand adds: “For any client the returns of active management are realised through long-term investing.

“We believe that this new fee model allows us to demonstrate our value proposition whilst sharing in the cost during periods of underperformance which all active managers, even the best, experience from time to time. We hope, therefore, that this goes some way to incentivising clients to consider the value of active investing over the long term.”

First funds that will apply the fulcrum fee

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