These Actively Managed Funds Tie Fees to Performance

All the funds have an annual reset so investors will never pay high fees based on performance in past years.

“We believe this is an important step for the active management industry to align our pricing with the new reality, which includes low-priced passive options,” Chris Thompson, head of the Americas Clients Group at AB, tells ThinkAdvisor. “Our hope is that this flexible fee structure gives advisors an opportunity to take that pricing issue off the table.”

(Related: Actively Managed Funds Disappoint in 2017 With Some Bright Spots)

Dean Ungar, a senior analyst Moody’s Investors Service, says the new AB FlexFee funds are “part of a process of active management trying to finding its niche in a world where passive investing has become so prevalent.”

Moreover, says Ungar, the concept “seems like a good fit if there is a fiduciary rule,” noting that firms seem to be operating under that premise despite the delay and now court ruling against implementation of the Labor Department’s fiduciary rule. (The SEC, however, is developing its own fiduciary standard.) “It will be interesting to see how the AB funds do,” says Ungar.

Thompson says he hopes other asset managers follow his firm’s example. He noted in a statement that AB “intentionally did not patent FlexFees” because it wants “to encourage industrywide adoption,” and it has already seen other asset managers file to offer similar products since AB announced its FlexFees plans last year.

— Check out 4 TDF Investing Myths: SSGA on ThinkAdvisor.