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MFDF - Mutual Fund Directors Forum - Positive Outlook for Performance Fees as Adviser Interest Grows

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Positive Outlook for Performance Fees as Adviser Interest Grows

A recent survey of about 200 financial professionals conducted by AB found that many fund advisers are interested in flexible fee structures. Most financial professionals (77%) would consider an actively-managed mutual fund that charges passive-like fees, with higher fees only when the fund outperforms its benchmark index, the survey found. The survey also found that a majority of advisers (78%) believe the market is due for a correction, and in a down market, 62% would expect passive strategies to perform worse than their active counterparts. In 2017, AB launched three performance-based fee funds that charge index-fund-like advisory fees if performance is at or below the index and a scaled performance fee as they outperform the index.Industry observers have acknowledged the regulatory and operational complexities associated with performance fees. For instance, many fund accounting software systems do not fully support performance fee calculations. Technological advances and improved computing power could help overcome some of these challenges as demand increases for alternative pricing structures.