Asset consultant Frontier Investment Consulting is ploughing ahead with its fee restructure proposition, despite little support from fund managers.
Frontier managing director Fiona Trafford-Walker said the investment consultancy firm was currently working on the practical implementation of the fee and alignment of interest philosophy it had been discussing in the past 12 months.
Based on a flat dollar fee and share of excess return, a number of of Frontier's clients are now looking at how this philosophy can be applied at their funds.
While fund managers did not necessarily need to offer such structures to win business, Trafford-Walker said Frontier would be encouraging superannuation funds to take the fee structures into account when deciding on where to put their money as mandates were finalised in the coming months.
"We'll basically say that these are the fee models, but if fund managers want to be ahead of the game they should consider rethinking their fee structures. We are also encouraging clients to walk away from managers with fee structures that are clearly too expensive or that result in poor alignment of interest," she said.
One client was close to announcing a new mandate with a global equity fund that had a flat dollar fee and a performance fee, she said.
"That manager is backing themselves and if they don't do well they will just cover costs, and if they do well, then there will be upside for them that is shared with the client," she said.
Last year, Frontier sent a letter to all external fund managers of its superannuation fund clients proposing the idea of charging flat dollar fees on investment mandates.
Trafford-Walker said there had been a good response from superannuation funds, but unsurprisingly not as good a response from fund managers.
"I don't think fund managers want to see a radical change in the current fee model, after all, it serves them very well. But it is not in members' or sponsors' interests to pay out large fees and just get market, or worse, returns. Low-cost passive management is a good option if market returns are the goal. The combination of flat dollar fees and a performance-based fee mean that clients don't pay high fees to managers when they don't do well, which is the way it should be," she said.
"But if they want to be ahead of the game, they should consider it."
