The two major asset consulting firms which do not have related funds management operations, Frontier Investment Consulting and Watson Wyatt, made strong statements on fee reform last month. Frontier managing director, Fiona Trafford-Walker, emailed every manager in the firm’s database on October 21, setting out its support for a “flat dollar fee, with an annual inflation ratchet that simply covers the cost of managing your business (excluding inappropriately large salaries and bonuses)…then a performance based fee which aligns the interests of the manager with the client”.

Trafford-Walker said the traditional percentage-of-FUM fee disproportionately benefits managers regardless of outperformance as markets rise, and destabilised them when markets collapsed in 2008. “At the very time clients needed their managers to be focused on their portfolios, many were worried about losing their jobs or were operating with reduced resources”. Good managers had nothing to fear from the alternative Frontier was proposing, she said. “If you are a manager with skill, then this should be an attractive proposition.

You get a flat known fee to cover your costs, and a performance fee if you perform. “If markets go nowhere for a while, firms who perform well will be able to invest in themselves from the performance based fee. In this respect, this is not a missive about reducing fees. In fact, some managers may earn more under this arrangement, but only if you perform well enough to justify it.”

Trafford-Walker said she didn’t wish to lecture managers on how they should price their offering, but pointed to the Cooper Review drive for cost reductions, and the likelihood that mergers would mean “fewer super funds in the future but with larger mandates on offer…managers who think innovatively about aligning their interests with those of clients are those likely to succeed”. Meanwhile, Watson Wyatt unleashed three reports which, in succession, hinted that private equity secondaries had too many buyers and were in a bubble; proposed a Frontier-esque flat fee for private equity managers, who should not receive carry until the client had recouped all their capital plus their preferred return; and accused ‘core’ infrastructure managers of numerous fee rip-offs which inclined the consultancy to be most interested in low-fee publicprivate partnerships or more private equity-like plays.