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Tiered fees would be “best” for retail investors, says CFA UK

Fees_diceFund managers have been called on to consider tiered fee structures where investors are charged on a sliding scale relative to the level of assets under management.

CFA UK said it reports into fee structures had found that tiered fees generally worked best for retail clients.

According to the organisation, fund structures should adhere to four key principles: simplicity, transparency, alignment of interest between manager and clients, and fairness to all investors. A tiered fee model honours all these principles, CFA UK said.

Although performance fees can be an effective tool for aligning the interests of managers and clients, the organisation warned that they come with inherent risks and complexity requiring fund boards to take extra care in ensuring investors are treated fairly.

Introducing fee waivers may add value, the report found, but they lack transparency for investors and may be perceived as a distortion of fee comparability due to their discretionary and unpredictable nature.

Keith Bonin, chair of the CFA UK fee structures working group, said: “There is no perfect fee structure. We acknowledge that there will be trade-offs between the four principles and which structures are most beneficial for investors will depend on the risk and performance characteristics of the fund.”

He added: “Ultimately, it is up to each fund board to determine what fee structures are most appropriate for each fund’s different circumstances.”

The report – which seeks to drive change by increasing fund boards’ focus on fee structures – comes shortly after the implementation of the Financial Conduct Authority’s (FCA) Assessment of Value regime, whereby fund houses will have to prove their funds add value for investors.

In November, the FCA fined Henderson Investment Funds Limited for charging retail investors inflated fees on two of its funds, saying they were not treated fairly.

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