New pay-for-performance funds to offer investors something different

A new pay-for-performance structure for pooled funds promise benchmark-and-beyond growth for investors, says Provisus CEO

A new pay-for-performance structure has been introduced for pooled funds in Canada – and it’s putting a wealth management firm’s money where its mouth is. Provisus Wealth Management, which has been in business in Canada for over a decade, has launched a sister company named Transcend, which will offer a first-of-its kind performance structure.

“The operative word is new, because what we’ve done doesn’t currently exist in Canada,” says Chris Ambridge, CEO of Provisus and Transcend. “We decided that with the advent of the ETFs and the robo structure, people are looking for real value for the money they pay, so we decided to give them something entirely different.”

Transcend has driven down the costs of their pool funds to their operating costs, charging only 25 basis points to clients in order to cover the administration, trading and legal requirements of the funds.

“For us to earn money, what we have to do is drive value-adding performance, or beat the benchmark that we’ve assigned,” says Ambridge. “Every fund has a pre-set industry standard benchmark and what we will do is – clients get the performance they get up to the benchmark, so no fees will be charged. But once we outperform the benchmark, we will take a 20% performance fee on the value add that we deliver.”

He adds that with pending CM2 regulation in store for mutual fund fee structures clients will start looking to more transparent options as they realize just what they’re paying for.

 “Bringing these funds to these fee levels has clearly been at the back of our minds with CRM2, because as clients for the first time in a lot of instances truly start to see what they’re paying, and see what they’re actually getting in terms of performance, we suspect there’s going to be a lot of people questioning what they’re in, and trying to determine if change is necessary,” he says.

He adds that Transcend’s service model will provide lower net worth clients with the same level of service as higher net worth investors – an important feature as robo advisor models become more prevalent among investors.”There’s always in every instance, a portfolio manager who will discuss over the telephone with the client their goals and aspirations, risk tolerance, profile, and produce for them a customized investment policy statement for that client and their money types,” he says.

“It’s exactly the same functionality, service and support that we give to our much wealthier clients so they’re taking that high-net worth solution and giving it to everybody.”

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