The Investment Management Association (IMA) has batted down industry calls to standardise retail distribution review compliant share classes.
Advisers and fund of funds managers believe the lack of commonality between the new classes – many of which are labelled with different letters such as ‘x’ or ‘z’ – could leave fund buyers at risk of buying the wrong share classes and ultimately burden the industry with a massive amount of extra administration.
Ian Hart, founder of Unbiased Financial Analysis, is calling on the IMA to offer clarity. ‘As an industry, it needs to get its act together – I can see so many people buying the wrong things. People will be embarrassed initially; the IFA will have to go back to the client, say sorry then go to the platform and back it out.’
Most of the major fund groups have launched clean fee share classes to comply with the RDR, stripping out commission and platform administration charges.
The majority of these share classes carry a 0.75% annual management charge (AMC), representing the removal of 0.5% for commission and 0.25% for the platform charge. However, these can vary and some clean fee share classes might only take out adviser commission, taking the AMC to 1%.
‘Due to the FSA’s deliberation, the fund groups have not been sure of what to do,’ added Hart. ‘The IMA didn’t guide them but knew it had to do something; but it’s been asleep at the wheel and hasn’t cajoled fund groups to resolve this issue. So they’ve all done something to keep the FSA happy but everyone has done it differently.’
His concerns are echoed by Rob Burdett, co-head of multi-manager at Thames River, who said: ‘People will have to take more care, as there will likely be more mistakes, if only because of the number of share classes and also because of the lack of commonality.
‘On the level of fees, RDR won’t necessarily lower costs; it’ll make for a wider range of costs and in the short-term, there will likely be confusion with the wider choice.’
However, Julie Patterson (pictured), director of authorised funds and tax at the IMA, does not expect labelling to prove an issue for end investors.
‘I don’t see how it would be confusing for investors – they won’t care if it’s called X or Y… It’s not that what the share classes are called per se that is the matter, it’s that there are two. [Labelling] is a back office issue, not an investor issue.’
An area with greater potential for confusion in the post-RDR world could be where an investor receives two statements for a fund, due to having old and new share classes.
‘We’ve been saying this to the FSA all along. If we knew the platform fees, we’d be in a better position for next year. But there are no signs of the FSA’s final rules coming out,’ Patterson added.