Why Funds Should Pay to Manage Other People’s Money

The asset management industry is in a funk. The popularity of low-cost index trackers is crushing fees across the board, while Morgan Stanley reckons a shift to performance-based charges threatens half of the industry's profit. Divyesh Hindocha has an even more radical suggestion: Fund managers should pay their clients for the privilege of managing their money.

Hindocha, a London-based partner at consultancy firm Mercer, wants to turn active managers into principals, rather than agents. If they really can outperform a given benchmark given a long enough time horizon, they should be willing to offer clients a fixed return over the benchmark—the fee for managing the money—in exchange for keeping any further out-performance they generate.