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There are a number of these funds that aren't available for purchase for the public. I was wondering if they were doing something similar along the lines of AB Flex (where the fee changes based on performance) or something else. Thanks!
An apparently little known fact is that several fund families, notably Fidelity, offer funds with performance based fees. AllianceBernstein is doing something a bit different in making nearly all of its fee performance based. Usually the performance adjustment is just a few basis points. Fidelity has 76 funds with these fees.
As ibartman noted, these funds are available only to certain fee based accounts. More specifically, to accounts that pay for their "investment advisory and administrative services". It sounds like clean shares, with a twist.
The twist is that the Fidelity flex funds charge no management fee either. Obviously no performance adjustment to 0.00%.
I'm guessing that Fidelity is making its profit by charging retirement plans a fee to offer their funds. For example, here's an excerpt from the fee section of a Fidelity service. The service is called "Fidelity Portfolio Advisory Service At Work. Like its retail PAS service, this manages your portfolio for you (for a fee), but the portfolio is your retirement plan.
If you have enrolled in the Service through a retirement plan that makes available Fidelity Flex mutual funds as the eligible investment options for the plan, you will not be charged an annual net advisory fee and will not receive a Pricing Supplement, because your plan sponsor has agreed to a single program fee with Fidelity that will be paid at the plan level.
"Plan sponsor" is your employer. It sounds like Fidelity is making its money from running the plan (that the employer is paying for), and offering the underlying funds "for free". Like offering a fund of funds with no separate management fee to entice people into an investment (here the retirement plan) where other fees are collected.
I'm still not entirely clear how Fidelity gets paid, especially if these funds show up in non-Fidelity run retirement plans. Still trying to "follow the money".
Comments
An apparently little known fact is that several fund families, notably Fidelity, offer funds with performance based fees. AllianceBernstein is doing something a bit different in making nearly all of its fee performance based. Usually the performance adjustment is just a few basis points. Fidelity has 76 funds with these fees.
With luck, you'll be able to read this Barron's article via google: AllianceBernstein Fires the Latest Shot in the Fee Wars
As ibartman noted, these funds are available only to certain fee based accounts. More specifically, to accounts that pay for their "investment advisory and administrative services". It sounds like clean shares, with a twist.
http://mutualfundobserver.com/discuss/discussion/33008/will-the-fiduciary-rule-shrink-the-ever-expanding-world-of-share-classes
The twist is that the Fidelity flex funds charge no management fee either. Obviously no performance adjustment to 0.00%.
I'm guessing that Fidelity is making its profit by charging retirement plans a fee to offer their funds. For example, here's an excerpt from the fee section of a Fidelity service. The service is called "Fidelity Portfolio Advisory Service At Work. Like its retail PAS service, this manages your portfolio for you (for a fee), but the portfolio is your retirement plan. "Plan sponsor" is your employer. It sounds like Fidelity is making its money from running the plan (that the employer is paying for), and offering the underlying funds "for free". Like offering a fund of funds with no separate management fee to entice people into an investment (here the retirement plan) where other fees are collected.
I'm still not entirely clear how Fidelity gets paid, especially if these funds show up in non-Fidelity run retirement plans. Still trying to "follow the money".
TRPrice offers 'ActivePlus' portfolios now (no fee advisory services using their investor-class funds).
So perhaps Fidelity is doing the "inverse" of that - advisory services for a fee, with no charge for funds....?