Fidelity to bring in performance-based fee structure

Client fees will vary depending on whether the £305bn asset manager has outperformed or underperformed benchmarks, with the base management fee reduced.

Where there is outperformance, both Fidelity and its clients will share in the upside. Conversely, if there is only benchmark-level performance or below, clients will pay lower fees.

Fees will be subject to a pre-determined cap and floor, and will sit within this range depending on the level of performance.

The firm's president Brian Conroy said the fee structure will meet the demands of its investor clients.

"We want to demonstrate real commitment to our active management capability," he said. "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."

However, the active manager has said it will pass on the cost of external research to its clients, bucking a trend where many other asset managers have said they will absorb this cost.

Under the incoming Markets in Financial Instruments Directive (MiFID), asset managers will be required to divulge to investors the costs of research, splitting these from the commission that they pay brokers.

A number of asset managers, including Goldman Sachs, T Rowe Price, and Vanguard, have all said they will pay for all external research under the MiFID rules.

Yet, Fidelity said investors would not see an increase to their fees, because "the reduction of our base management fee will exceed and offset the allocated client charge for this research".

Conroy 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."

Fidelity's new fee structure is somewhat similar to that used by Orbis Investments, under which outperformance fees are put into a fee reserve and are then refunded to clients if there is underperformance. The asset manager can only draw from the reserve when it reaches a certain proportion of the client's assets.

The fixed fee model has been criticised as only benefitting asset managers to the detriment of investors. Cass Business School professor Richard Payne previously said it creates a "clear mismatch" between both parties' interests.

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• Topics
• Investment
• fees
• Fees and charges
• fidelity international
• Mifid II
• markets in financial instruments directive