Fidelity International Removes Pivot Fees Following Moderate Demand From Retail Investors


Fidelity is dropping the variable-cost share class in five of its Oeics after a lack of demand led to declining assets, while reducing the cost of its passive multi-asset line.

The asset manager’s support charge share class – W-Variable Management Fee (W-VMF) – was introduced in five of its UK-domiciled Oeics in July 2018 in response to the growing debate around the value of actively managing funds.

This came after the Financial Conduct Authority’s 2016 Asset Management Study found little innovation when it comes to fee structures and significant clustering around an arbitrary 0.75% figure.

Investors who purchased the W-VMF share class were granted access to an annual base management fee of 0.10% to 0.65% lower. The variable part of the commission then slipped plus or minus 0.20% depending on performance, meaning that the maximum commission would be 0.85% if the fund outperformed or 0.45% if it underperformed. -performed.

Limited demand for share class

Fidelity said it concluded that the funds’ W-VMF share classes were too small to be managed profitably.

As a result, it announced on May 25 that it would move investments in the W-VMF share classes to the W share classes of funds, its least expensive flat-rate share classes.

The change applies to the W-VMF share class of the Fidelity American, Asian Dividend, European, Global Special Situations and Special Situations funds.

Three of the asset manager’s trusts, Fidelity Japan Trust (formerly Fidelity Japanese Values), Fidelity Asian Values ​​and Fidelity China Special Situations, representing £ 2.9 billion in assets under management, will continue to have the structure of charges.

A spokesperson for Fidelity International said: “We have seen limited customer demand for our open-end funds and as a result we have decided that the UK domiciled VMF share classes are too small to be. managed profitably. However, we continue to see some clients in the institutional space who are open to variable fees linked to performance results.

“Adopting our model has always been a customer’s choice and we are happy to see that it has opened the doors to broader discussions on pricing structures.”

“ The challenge with fulcrum fees is always that they need to be explained ”

AJ Bell, head of active portfolios Ryan Hughes said it was encouraging to see Fidelity breaking the mold when it came to market with its pivot fees, but it appears to be an outlier with little sign of it falling. ‘other innovative asset managers with fee structures.

He said: “The challenge with fulcrum charges is always that they have to be explained. Fixed costs are a concept easy to understand by all market participants and are easily explained to end investors, however, the variability of the pivot cost approach makes it much more difficult.

“There is also a natural difficulty in explaining to clients that if the fund is performing well they will pay higher fees, whereas their basic expectation is understandable that it is doing well in the first place.”

Until recently, AJ Bell had exposure to Fidelity Asian Values ​​investment trust, which continues to use pivot fees.

“Given its style of value and underperformance, our investors had seen the fees adjusted downward, however, due to changes in asset allocation in our models, we recently sold the position and no So we have no exposure to funds or trusts that use pivot fees, ”said Hughes.

Fidelity said the fulcrum fee structure has proven popular with investment trusts that have only one share class and an independent board to negotiate a single fee structure on behalf of all shareholders, many of whom also welcomed the variable commission.

Fidelity reduces OCF on low cost multi-asset range

Fidelity also announced on Tuesday that it had reduced the amount of ongoing charges on its Fidelity Multi Asset Allocator range of funds from 0.25% to 0.2%.

The five risk-rated funds invest in global markets using passive strategies and have just over £ 1 billion in assets under management.

John Clougherty, Wholesale Director of Fidelity International (pictured), said: “At Fidelity International, we are passionate about giving our customers choice and value because we recognize that every penny invested helps individuals and families to reach their financial goals.

“Our line of multi-asset allocators was already a low-cost solution, but I’m happy we can go further for our customers by lowering costs.”


About Author

Comments are closed.