Today, Fidelity International is leading the market by introducing a new variable management fee model across its active equity capabilities for its clients, globally. This will involve both a reduction of the annual management fee and a change to a variable management fee that is symmetrically linked to fund performance.
This variable management fee operates as a sliding scale and acts as a two-way sharing of risk and return - also known as a 'fulcrum fee'. Where we deliver outperformance net of fees we will share in the upside and in the case that clients experience only benchmark level performance or below, they will see lower fee levels under this new model. The fee that clients will pay will sit within a range and will be subject to a pre-determined cap (maximum) and floor (minimum).
“We want to demonstrate real commitment to our active management capability. We will move away from a flat fee model and get paid according to how well we do for our clients. These changes will more closely align the performance of our business with the performance of our clients’ portfolios and deliver what we believe clients and regulators are looking for. Our fee structure will give back for underperformance of the benchmark, whereas others do not”, says Brian Conroy President Fidelity International
We are also announcing today our position with regard to MIFID II regulations and third-party research. We fully support the objective of the regulations but believe the debate has focused singularly on which model asset managers will use to pay for external research, rather than the total cost of asset management services and the value they deliver. In addition, the global nature of our business, both in terms of our clients and their access to our internal global research platform, means we need to apply a consistent model across our business.
With this in mind, we have decided to adopt the CSA-RPA model for procuring third party research but the reduction of our base management fee will exceed and offset the allocated client charge for this research. We believe that the CSA-RPA model is a flexible, transparent and globally consistent way to access the range of external inputs required to support our active management process.
For those clients who simply want to drive down costs and do not want to pay for the active approach, we will be extending our successful range of low cost index funds on a global basis, accessible to all clients.
Brian Conroy, President, Fidelity International added:
“Having looked at the implications of upcoming regulation, as well as taking into account feedback from the UK regulator in its recent market study on the lack of pricing innovation in our industry, we believe that a far more fundamental change to how clients are charged needs to be instituted. We are passionate about giving our clients both choice and value and these changes will even better align our services directly to their needs and expectations. We look forward to working with all our clients over the coming months to discuss and implement these changes.”
Notes to Editors
Fidelity International offers world class investment solutions and retirement expertise. As a privately owned, independent company, investment is our only business. We are driven by the needs of our clients, not by shareholders. Our vision is to deliver innovative client solutions for a better future. We invest £234.2bn globally on behalf of clients in 25 countries across Asia-Pacific, Europe, the Middle East, and South America. Our clients range from central banks, sovereign wealth funds, large corporates, financial institutions, insurers and wealth managers, to private individuals. In addition to asset management, we offer investment administration and guidance for employer benefit schemes, advisers and individuals in several countries. We are responsible for £70.9bn in assets under administration. Data as at 31 March 2017.
Any opinions expressed are made at the time of writing and can be subject to change without notification.
Illustration of the Fulcrum Fee model
About Fidelity International
Fidelity International offers world-class investment solutions and retirement expertise. As a privately owned, independent company, investment is our only business. We are driven by the needs of our clients, not by shareholders. Our vision is to deliver innovative client solutions for a better future.
Established in 1969 as the international arm of Fidelity Investments, which was founded in Boston in 1946, Fidelity International became independent of the US organisation in 1980. Today it is owned mainly by management and members of the original founding family.