Pay for performance. That’s the concept behind AllianceBernstein’s (AB) new FlexFee funds, a group of actively managed funds that charge only index-like fees if they perform in line or below their benchmark indexes and higher fees only if they outperform their benchmarks by a considerable amount.
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Starting Thursday, advisors will have access to four AB FlexFee funds on platforms from Merrill Lynch, Morgan Stanley, Charles Schwab, TD Ameritrade, Pershing and LPL Financial.
Two are stock funds: the AB FlexFee Large Cap Growth Portfolio (FFLYX) and AB FlexFee US Thematic Portfolio (FFTYX), and two are bond funds: AB FlexFee International Bond Portfolio (FFIYX) and AB FlexFee US High Yield Portfolio (HIYYX).
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The minimum fees for the stock funds are 10 basis points if they don’t beat their respective indexes — the Russell 1000 for the growth fund and the S&P 500 for the thematic portfolio — and the maximum is 1.10%, if they beat their respective indexes by 2.8% or more.
Fees for the two bond funds are similarly constructed but with different minimums and maximums: a 20 basis-point minimum and 80 basis-point maximum for the international fund (if it outperforms its index by 1.4%) and a 30 basis-point minimum and 70 basis-point maximum for the high-yield portfolio (if it outperforms by 1.5%).