Guest Opinion
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Right of reply: Fisher Funds defends fees

We absolutely stand by our clients receiving very good value for money from our products and service, CEO Bruce McLachlan says.

Fisher Funds chief executive Bruce McLachlan.

Bruce McLachlan Fri, 05 Aug 2022

Tim Hunter’s opinion piece on Fisher Funds and our performance fee model (When will the FMA act on performance fees?) is wrong and makes serious and incorrect allegations of the legality of Fisher Funds fee structure. It is an inaccurate and emotive piece of reporting. We attempted to work with Tim in order to explain our model but he unfortunately chose not to engage with the information we provided or accept our offer of an interview. 

This is deeply disappointing and unacceptable.  

We stand by our performance fee structure and are confident that it complies with the current FMA guidance.  

This year we undertook a full review of our performance fee structure to ensure that the key features of our performance fee model reflected the FMA’s latest advice and no significant issues were identified.  

Fisher Funds has also been in discussion throughout 2022 with the supervisor of the Fisher Funds KiwiSaver Scheme and with the FMA regarding the performance fee model. While neither party has endorsed the model used, the fee has not been deemed to be unreasonable.  

Hurdle rate of return 

The column raises particular concerns with the hurdle rate of return used in our performance fee structure. We have reviewed our hurdle rate of return used closely and are confident it is reasonable and meets the substance of the FMA guidance.

These reasons include: 

  • Over the medium to long-term the OCR +5% exactly matches the expected return on equities. While in recent years (prior to January this year) this has not held true for every year, it is noted that equity markets experienced an unparalleled bull run at a time when interest rates were at historic lows, which has skewed recent results. 
  • The performance fee hurdle is transparent and easily understood by investors. Clients understand when and how a performance fee will be paid, negative feedback is very rare, and client-facing staff report no difficulty in explaining the hurdle rate to clients.
  • Clients understand that they retain 90% of any outperformance and, when a performance fee has been paid, the client has received a substantial return from their investment in absolute terms over that period, and retained the vast majority of the benefit.
  • The use of a hurdle rate of return based on a market-related index could result in performance fee being paid when the absolute return of the fund is low, or even negative. In addition, other models that utilise a market-related index can, and do, retain more than 10% of the outperformance. This would not be acceptable to us and we believe that clients would find it unacceptable as well. 

Further formal fee value for money review 

Along with all other licensed fund managers, we will undertake a further formal fee value for money review in the coming months and will retest the above features of the performance fee model that we believe makes the fee reasonable as part of this process. 

It’s important to acknowledge that the year ended June 30, 2021, represented an extraordinary period for investors with returns beyond all expectations.

As an example, the return for our clients invested in the Fisher Funds KiwiSaver Growth Fund to June 30, 2021, was 21.2% (after fees and before tax). The performance fees earned over this period reflect the exceptionally strong year our investment team had achieving returns among the highest in the industry for our clients. 

We absolutely stand by our clients receiving very good value for money from our products and service.

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Bruce McLachlan Fri, 05 Aug 2022
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Right of reply: Fisher Funds defends fees
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