Fidelity puts some hard numbers to its new fee model

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  • From 1 March next year there will be a 0.1% reduction in the base charge
  • The variable element will move between -0.2% and +0.2% depending on performance of a fund versus it benchmark

Alex Sebastian For This Is Money

One of the City’s largest investment firms has revealed some hard numbers behind its proposed new variable fee structure – where investors will pay more if a fund does well but less if it lags.

Fidelity International first announced the move to the ‘fulcrum fee’, as it was dubbed at the time, in October. However, it failed to put any numbers behind this to show what it would actually cost

The basis of the system is a lower fixed charge as the starting point and a variable element that goes up or down depending on how the fund performs versus its benchmark.

From March Fidelity is going to offer a news fee structure with a lower fixed charge as the starting point and a variable element that goes up or down depending on performance.

From March Fidelity is going to offer a news fee structure with a lower fixed charge as the starting point and a variable element that goes up or down depending on performance.

From 1 March next year there will be a 0.1% reduction in the fixed annual base charge on funds as the starting point. This will be coupled with a variable element moving between a 0.2% drop in the fee and a 0.2% maximum hike to it, depending on performance.

That means a fund with a new standard charge of 0.65 per cent could go as low as 0.45 per cent or as high as 0.85 per cent. 

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

The firm claims this acts as ‘a two-way sharing of risk and return’.

At that time of the announcement, there were no specifics provided; something which the media and investment commentators of various stripes were very quick to bemoan.

The firm has now provided some of the headline figures involved, which provides much needed insight into what it will really mean for your money if you invest with the firm.

The new model brings down the base price and adds a variable element which is linked to how well a fund does. 

The new model brings down the base price and adds a variable element which is linked to how well a fund does. 

The new model brings down the base price and adds a variable element which is linked to how well a fund does. 

Fidelity provided an illustration of the potential impact on an equities fund currently charging a flat 0.75% fee.

As it shows, investors could end up paying 0.1% more than they do currently if a fund does well, but on the positive side could pay 0.3% less if it does not deliver for them.

The first of the firm’s offerings effected will be a group of 10 active equity funds accounting for nearly 17 per cent of Fidelity’s total equity assets under management.

Additional share classes across the Fidelity funds range will be phased in at later dates. 

Fidelity International President Brian Conroy commented: ‘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. Our variable management fee clearly aligns our interests to our clients. 

‘We believe this is a meaningful step and also one that we hope will be adopted by the wider asset management industry.’

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