Investment provider and wealth manager Hargreaves Landsdown says that Fidelity’s radical fund management fee changes may be too complicated for investors to understand.

Bristol-based online provider HL, which also provides Financial Planning, has labelled Fidelity’s new performance-based ‘Fulcrum’ fee system as “complicated” for investors. Partly in response to the FCA’s recent Asset Management Review, Fidelity plans to switch from charging annual management fees to performance-based charging.

The introduction by Fidelity of the new Fulcrum fee system means that a variable management fee will operate on a sliding scale and acts as a two-way sharing of risk and return, it says. If a fund outperforms net of fees the company will share in the upside. If clients experience only benchmark level performance or below, they will see lower fee levels. The actual fee that clients will pay will sit within a range and will be subject to a pre-determined cap (maximum) and floor (minimum). 

Explaining its new fee system, Fidelity said: “In response to the growing debate around the value of active fund management, the industry’s alignment with client interests and the transparency of charging structures, Fidelity International believes that now is the time to make a fundamental change in how it charges for its services.”

However, rival Hargreaves Lansdown said Fidelity’s latest move would make things difficult and complicated for investors who want to invest in an active fund.

Laith Khalaf, senior analyst, Hargreaves Lansdown said: “We appreciate that Fidelity is trying to do something innovative with active fund fees here, but we don’t think this new structure is going to deliver for investors. The major problem with Fidelity’s new fee model is how complicated it makes things for investors trying to choose an active fund. 

“Investors will understandably find it very hard to get their heads around the new charging structure, and it will be challenging to compare the potential cost of these new share classes with the current share classes, and indeed with competitor funds charging a more traditional fixed percentage charge.”

Mr Khalaf said that investors would rather know beforehand what the annual charge will be and that no one wants to pay for underperformance, no matter how low the cost would be.

“Investors will naturally question why they should pay 0.45% for significant underperformance, when they can pick up an index tracker for as little as 0.06%. They will also question why they should pay more for outperformance, when that is what they expect as standard from an active fund manager. 

“Overall we want the fund management industry to deliver simple, lower fund charges for investors. We will continue to exert pressure on fund groups to offer lower prices to our clients,” he said.

Fidelity has been asked to comment. Any reply will appear here later.