Fidelity performance fees

Are variable fund fees the future?

Justin Modray

Published on 29 October 2017

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The fund management industry has been clinging on to relatively high fixed annual fees for dear life, despite so few funds justifying this by their performance. It’s certainly a subject I’ve moaned about for as long as I can remember!

So it’s great to see Fidelity set the cat amongst the pigeons by confirming that it will introduce ‘variable’ fees on 10 of its funds (although 5 of these are offshore) from March 2018. And whereas the few such fees we’ve seen in the past tended to be a one-way street in favour of the fund manager, Fidelity is genuinely sharing some risk with investors by lowering its fee if it underperforms.

The onshore funds that will see the new fee are: Fidelity American, Asian Dividend, European, Global Special Situations and Special Situations.

If a fund matches its index investors will pay 0.1% a year less than present, rising to 0.3% less if the fund underperforms by 2% or more (sliding scale in between). If a fund consistently beats its index by 2% or more Fidelity will earn an extra 0.1% a year, in which case I doubt investors will grumble.

One sting in the tail is that Fidelity tends to charge relatively high expenses to many of its funds, which often leads to them having higher than average Ongoing Charge Figures (OCFs) – so it still has some work to do on charges. And, of course, we’d like to see these new fees extend across the whole Fidelity fund range sooner than later.

Nevertheless, this is a significant step forwards for fund charging and while it still doesn’t address fund managers generally failing to pass on economies of scale to investors, it’s a very positive move. Let’s now hope that other popular fund managers including M&G, Jupiter, Fundsmith, Invesco Perpetual and Woodford take note and follow suit, so that we start to see widescale reform across the industry.