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The RDR race: how clean are these seven firms?
by Danielle Levy on Nov 22, 2012 at 07:00
With the retail distribution review just around the corner, Wealth Manager caught up with seven firms at the end of October to find out just how clean their share classes are.
With just over two months to go until the retail distribution review (RDR) comes into force, how far along are wealth managers in moving their clients’ portfolios to RDR-ready share classes?
A whole swathe of asset managers have introduced non trail paying units this year to meet the goals of greater transparency on charges, in a move that is speeding the shift towards a pure fee-based model at a number of firms.
While firms can continue to take trail on legacy positions or rebate it to their clients post-RDR, several have publicly declared their intention to shift all clients into clean share classes.
Much will depend on the current charging arrangement the client has with the company, and whether the firm chooses to supplement its revenue with trail commission.
With this in mind, we asked leading firms in the sector what proportion of their client base is now in clean share classes, and how they will tackle legacy holdings as the RDR deadline approaches.
Berry Asset Management
Jamie Berry, chairman of the boutique, estimates that approximately 90% of underlying fund holdings are in RDR-compliant share classes. Where new non-trail paying units become available, the firm will then switch, while any legacy trail is currently rebated to clients.
Jonathan Polin, chief executive of Ashcourt Rowan, estimates the firm has around 35% to 40% of underlying client holdings in RDR-ready share classes, although he is aiming to move all client units out of trail-paying units by next September.
‘You can hold [trail-paying units] for as long as you like for existing business, but I want that cleared out and everything moved into RDR-ready share classes, but some fund groups have been quite slow as well,’ he explained.
While all new business is going into institutional share classes, Polin said Ashcourt will only allocate to 0.75% institutional share classes, while the firm is also trying to negotiate this charge down with several groups.
Rathbone Investment Management is to move its entire client base out of trail-paying units ahead of the RDR. In mid October the wealth firm had already netted a £500,000 saving for its clients after switching £200 million of assets out of retail and institutional share classes into even cleaner RDR-share classes over a period of a number of weeks.
Head of investment management Paul Chavasse said where clean share classes are unavailable, the firm will donate the rebates to charity. He estimated around 28% of the firm’s total £16.6 billion in assets is in open-ended funds, with around 90% of holdings already in institutional units.
Heartwood Investment Management investment director Alan Sippetts says the firm has sought access to institutional share classes for many years, and where these haven’t been available they have negotiated down fees and rebated the difference to clients. He estimates that of the underlying 75 funds the team is currently invested in through institutional shares, the firm will only have to shift into new share classes for one to two. Heartwood currently has £1.5 billion under management.
Quilter managing director Stephen Vakil says a significant majority of the firm’s unit holdings are now in RDR-ready share classes, having negotiated with fund houses to get access to institutional units over the past few years.
‘Virtually everything we buy today is institutional, there is a legacy of units that will stay paying trail, but this is significantly diminishing,’ Vakil said.
He said Quilter is progressing in its programme of converting retail share classes into RDR-ready or institutional share classes where these become available, but where they are not, the firm will continue to take trail, which goes towards its revenues.
Head of investment strategy Gemma Godfrey estimates at least 90% of Brooks Macdonald’s client unit holdings are in institutional and RDR-ready share classes.
‘We have very minimal fund holdings in retail shares. Predominantly any shares are from when we have a new client that transfers in assets and we have to align them with the way we are investing as a house,’ Godfrey said.
She said that where super clean RDR share classes are being launched, the team is reviewing their merits in comparison to their institutional equivalents.
Since October last year, the firm has allocated new client monies into non trail-paying units and has embarked on a programme of shifting existing clients out of trail-paying units.
Charlotte Black, director of corporate affairs at Brewin Dolphin, said: ‘We have an ongoing rolling programme transferring to non-trail paying units. We have already removed several million pounds of trail and the project is on track. We hope there won’t be trail coming through in the future.’