James Hay: We’ll keep ‘dirty’ share classes if cheaper

James Hay Partnership has said it may eschew a wider industry move to adopt clean shares for all funds ahead of new rules banning unit rebates, saying it may continue to offer unit rebates on its Investment Centre platform if this results in lower investment costs for clients.

Chris Smeaton, head of product development at James Hay, was speaking to FTAdviser after the company announced it’s ‘fund supermarket’ has increased the number of funds available to 2,048, of which 600 are currently available through ‘clean’ share classes.

Mr Smeaton said the currently “industry dynamic” - where fund managers are “umming and ahing” over whether to launch clean shares - has led the platform to add new funds individually on a daily basis “rather than in chunks”.

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He added that the platform is in many cases remaining with the “dirty” share class where this “cheaper” for clients.

Mr Smeaton said: “If the scenario is that the dirty version is cheaper than the clean version we are keeping that available for the customers.

“Some fund managers are umming and ahing over whether they will do clean share classes. There will be funds coming off and going on on an ongoing basis. Because of the dynamic around clean we are adding them on a daily basis rather than in chunks.”

FTAdviser reported in May of this year, shortly after the announcement by the regulator that it was going ahead with its cash rebate ban, that changes in platform fund pricing appeared to be resulting in many clients - and especially lower value clients - paying higher costs.

In part this was found to be because many managers’ existing ‘clean’ share classes are more expensive than the rebate-paying on-platform alternative due to platform operators driving down costs.

Artemis has admitted that its clean share classes yield higher margins, claiming it had been forced to settle for lower margins previously.

Total cost of investing has also increased on several M&G funds when including an additional 29bps for a platform charge and 50bps for the adviser fee.

Mr Smeaton said that while James Hay was adding 100 to 200 clean share classes per month, and despite its original plan to go completely clean, it has decided to retain unit rebates where this continues to offer a lower total cost of investment.

He said: “We very much thought we would go completely clean but if the right thing for the customer is for us to have a unit rebate it’s something we would consider.

“Whatever is the lowest cost to the customer in terms of cost of the fund. Where the net TER is cheaper we will retain that where we can.”

The Investment Centre now gives advisers access to 2,048 discounted retail, institutional and pooled pension funds from 77 fund managers.

Additional reporting by Ashley Wassall