Putnam Investments is looking to regain some of its past might by cutting some of its fund fees to attract new business. But the real news to me in the company’s press release announcing the management fee reductions is that it is adding a performance fee structure – an idea that should become the industry standard.
Typically the way a mutual fund and its managers get paid is based on a flat fee that is a percentage of total assets under management. Not much incentive there except to get people to sell more of your funds.
But what Putnam is proposing for its U.S. growth funds, international funds and Global Equity Fund are management fees based on the performance of the fund. Fees to the fund manager will increase if the fund outperforms its benchmark over an unspecified period of time. And the fees will decrease if the fund under performs the benchmark.The incentive is for those managers to work harder and smarter for better returns.
A smart marketing move by Putnam. Financial planners and financial advisers should like the new fee structure. The question is whether other fund companies will follow suit. They should.