Following the RDR, the FCA brought in new regulations intended to give consumers more confidence in the retail investment market.
Historically, investments paid advisers ‘trail commission’ which was included in a fund’s annual management charge (AMC). However, ‘clean’ share classes, with no trail, have been brought in. As a result, they have lowered the AMC from an average of 1.5 per cent to roughly 1 per cent.
In late October 2013, the FCA set out what it expects from advisers and platforms when transferring investors to pre- and post-RDR share classes. In its guidance consultation, the regulator says it would expect clean unit classes to be “exactly the same” as the pre-RDR class, with the only difference being the reduced AMC.
In the case of platforms specifically, in the FCA’s 13/1 policy statement released in April 2013, the regulator referred to the introduction of clean unit classes and announced the banning of payments to platforms from product providers. The rules come into force on 6 April 2014, with the rules in relation to any legacy payments to come into force on 6 April 2016.
Throughout this year, fund management groups and platforms have been introducing funds with ‘clean’ share classes, replacing the trail commission-paying classes. As of April 2014, commission-paying funds will no longer be available to new investors.
In response, many platforms have been changing their charging structures in preparation. FundsNetwork, for example, announced in mid-October that all new business onto the platform would be in clean share classes from 9 December 2013, with a £45 annual fee and 0.25 per cent service charge.
Additionally, ratings, data and analysis provider FE has developed synthetic performance histories for clean share classes. The idea behind the move is to enable IFAs and investors to be able to compare the past performance of funds of clean share classes to other funds on an equivalent basis.
Currently, clean share classes carry a typical AMC of between 0.75 and 1 per cent for an equity fund — the major advantage being that it is simple and easy to explain to consumers.
An exercise in futility
The RDR was meant to create a more transparent and cheaper investment world. But do advisers think that has been achieved?
For Simon Webster, managing director of Kent-based advisers Facts and Figures, clean share classes have purely been an exercise in futility. Before clean share classes, the revenue was split between manager and platform. But now, it still costs the same and is still split between manager and platform, he says.
The exercise has not changed clients’ opinions, either. “We have explained this to over 100 clients. We have genuinely yet to find one who cared or who thought it was helpful.”
The clients of Facts and Figures suffered due to the cost to the platform, fund management and advisory communities implementing RDR. “It has cost scores of man hours to do the switching at our firm alone; the complexities have been endless and it has added zero client benefit. Indeed our service standards have slipped as we have struggled to cope,” he adds.