Hargreaves says boycott performance fees
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Source: JAY WILLIAMS
Hargreaves Lansdown chief executive Peter Hargreaves has slammed the use of performance fees and has called for advisers to boycott funds which use them, except in exceptional circumstances.
Writing in this week’s Money Marketing, Hargreaves, who steps down from his chief executive role later this year, says performance fees are only designed to benefit the manager and less than a dozen managers in the UK warrant them.
He says if fund managers benefit when they perform well, they should also be penalised if they perform badly. He argues that those fund managers with performance fees on their funds should have an additional charge deducted from them if they fail to perform.
He says: “Surely it is only equitable for a performance fee to exist if the benefits to the fund manager on the upside equally disadvantage him on the downside. He should put the money in.”
Hargreaves says that there are two types of performance fee which he feels are unfair on the investor.
The first is the use of a hurdle rate which he says is easy to beat, such as Libor.
Hargreaves says the second is using hurdles that only apply over a short-term per-iod, such as three months, which he says are particularly easy to beat.
Hargreaves Lansdown currently has 14 funds with a performance fee within its Wealth 150. However, it says that in the future it will be far stricter on adding and retaining those funds on the list.
Schroders head of UK intermediary business Robin Stoakley says: “Performance fees offer a good incentive to managers to add value.
“In my opinion, there is nothing wrong with them as long as they have a sensible and realistic calculation and a relevant benchmark.”
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Readers' comments (10)
neil bridge | 30 Jul 2010 9:19 am
its all about choice, we could debate whether a Bugatti Veyron surpersport is worth £1.4 mill ( i cant afford one but peter could buy a few) Or even needs to Exist.No one makes Advisors buy funds with a performance fee, its choice, If the advisor thinks the manager derserves a fee they will pay as is proved on numerous hedge funds and UCITS 3 funds.
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Anonymous | 30 Jul 2010 9:20 am
Wow, as many as a dozen. I think Peter is being very kind. Maybe performance fee's could be calculated in line with with fund managers ego's.
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David Norman | 30 Jul 2010 9:56 am
Performance fees would be fine - if the base fee was 0.1%.
But with base fees of 1.5% and then performance fees that only go up and never down - it is ridiculous.
RDR is about advice fees.....when is RIR going to look a fund manager remuneration??
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M J Winfield | 30 Jul 2010 10:03 am
I go further than Peter, Performance fees should be made illegal.
1] They are a direct charge against investment return.
2] Who controls the money end, not the invested, but some mistery group of good old boys. Rather like the Renumeration Committee at the Regulators and Banks
My understanding is that there exists extreme difficulty finding a poor fund manager, as with old fashion bookmakers. Therefore they are adequately rewarded for their performance already. Infact in many cases over rewarded.
Just like MP's crying about expenses. Being a Fund Manager or an MP is not complusary and if either think they are worth more, go for it and goodbye.
In anycase what exactly is a good fund manager? The term is far too general and generally meaningless.
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Ashley Clark | 30 Jul 2010 10:06 am
Interest comments given that I understand the HL model is built on a FBC model - in short the better the performance the more income for HL. Does HL waive its FBC when it recommends dog funds?
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Anonymous | 30 Jul 2010 12:05 pm
Interesting comments from HL.
The direct offer, execution only kings of the universe. They also charge similar to what most of us charge for giving the advise.
Nice comments from a company that in effect polishes its marketing in order to earn vast amounts of money without performing themselves!!!!
i would be interested to know if Peter took any bonuses ....... sorry no i wouldnt!!!
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David Wood | 30 Jul 2010 3:28 pm
Every FA knows which funds charge performance fees and advise their clients accordingly. If PH feels so strongly, then he shouldn't be a hypocrite.
Don't include any of these in his HL fund list. That of course would cost HL fees , so it won't happen !
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Anonymous | 1 Aug 2010 3:28 pm
Some of the largest fund raises over the last 2 years from Hargreaves Lansdown include:
Artemis Strategic Assets
Jupiter Absolute Return
Fidelity China
Cazenove UK Dynamic Absolute Return
ALL charge performance fees, and all were heavily promoted by HL.
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Peter Davies @ Create Wealth Management | 2 Aug 2010 10:08 am
Interesting point made by Peter Hargreaves. I would like to ask him however, does he personally have a clause in his own contract that deducts a certain amount from his remuneration/salary if HL dont achieve a certain profit target for the year and conversely pays him a greater package when the company over achieves?
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Simon | 4 Aug 2010 8:46 am
Complete tripe. On the one hand he doesn't like performance fees, on the other hand 14 of the HL top 150 funds have them.
Funny that, presumably they pay good commissions, eh Peter.
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