Fidelity Just Made a ‘Bold’ Move With Fees

401k, fees, Fidelity Investments
Dogged or desperate? Little of both?

They’re mad as h(eck), and they’re not going to take this anymore. After getting repeatedly spanked by their passively managed counterparts, active managers are on the march.

The latest attempt to stem active outflows is an announcement from Fidelity International, the overseas arm of the Boston-based investing behemoth, that it will charge more for benchmark outperformance and less for underperformance on the funds it manages.

More in tune with the fee-based movement and an effort to “sit on the same side of the table” as their clients and shareholders, the company gave no indication of when (or if) it would happen with its U.S.-based business.

“We have listened to the criticism of the asset management industry and rethought our approach to charging clients,” Fidelity International President Brian Conroy told reporters. “In the future, we believe the vast majority of funds will charge on a variable basis as well.”

Reuters reports that the company “would discuss its plans with clients and regulators in the coming weeks and months, although [Conroy] hoped the first new share classes using this fee structure would be available to clients in early 2018.”

“The changes would see the management fee, which is charged annually as a percentage of assets invested, set on a sliding scale,” the news service notes. “Where a fund beats its benchmark, net of fees, the management fee will rise. If it meets or lags the benchmark, the fee falls.”

Given the breadth of its current fee range, as well as a need to model the impact of the changes and talk to clients, Fidelity said it could not give firm guidance on the specifics of its pricing scale.

Morningstar reported $19.6 billion in redemptions from active funds in July, compared with $14.6 billion in June. Passive funds had inflows of $10.8 billion in July, up from $9.3 billion in June.

John Sullivan
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With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.

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