Equity Trustees introduces performance-based fee

Equity Trustees (EQT) has made two changes to the fee structures of its Wholesale Flagship Australian Equities Fund to allow investors to choose a fee option that reflects their view of potential performance and to stem the flow of investors abandoning long-term strategies.

EQT chief investment officer Shaun Manuell said investors' continued focus on short-term market volatility would hurt their long-term wealth creation strategies because abandoning long-term goals by focusing on short-term volatility acted as a feedback loop into further volatility.

"Equity markets are cyclical and the most likely outcome is that the market will improve over time; however many investors' current asset allocation does not match this longer-term outlook as they are focussed on short-term loss of their capital," he said.

The fund's standard expense ratio has been reduced and an alternative fee structure implemented with a flat management expense ratio of 0.40 per cent and a fee for 20 per cent outperformance of the S&P/ASX200 Accumulation Index.

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"Because this fee structure has a sliding scale, if we only outperform our benchmark by a small amount, investors will pay less in overall fees than previously. However, if we achieve significant outperformance - as we always strive to do -investors will pay more in fees but will obviously be better off through higher returns," Manuell said.

He said while fees had become an important consideration in the fund manager selection process, the primary consideration should be the return the fund manager is targeting and what risk is being taken to deliver those returns.