Data from a survey conducted by Zurich among 230 advisers and published exclusively by FTAdviser reveal the largest proportion of intermediaries, around four in ten, prefer straightforward ‘clean’ share classes to be offered by fund managers to all platforms.
Around a quarter said they preferred the preferential superclean shares, which are offered to particular platforms and are often around 10 to 30 basis points lower. Only 4 per cent said they would opt for ‘bundled’ shares offering unit rebates.
The research also found that close to half of advisers do not think it is positive for transparency that the industry is offering differently priced share classes for the same products.
Alistair Wilson, head of retail platform strategy at Zurich, said: “[Advisers] do not think that the industry offering differently priced share classes is a good thing because of the complication around availability of superclean share classes and the challenges around re-registration.
“The industry wants to move to transparency. The Financial Conduct Authority wants the industry to be more transparent, but it is clear that we’ve got a long way to go with regard to the share class piece.”
‘Superclean’, or bespoke, share classes have been lauded by some as moving funds closer to ‘factory gate’ pricing, but have proved controversial amid accusations they are often offered in return for pledges of minimum distribution levels and that they constitute a conflict of interest.
Earlier this year Confunds claimed it lost out on the ‘Z’ share class for the hugely popular Woodford Equity Fund, which was priced at 0.65 per cent as opposed to the standard clean share 0.75 per cent, because it was not able to ‘guarantee’ distribution.
Research conducted late last year even suggested some fund managers would seek to offer these superclean deals through restricted advice firms which could effectively guarantee distribution through the use of limited panels in particular product areas.
Speaking to FTAdviser, Mr Wilson said that it would be natural to expect advisers to plump for the least expensive unit but that most instead opted for the simplicity and ease of transfer of standard unbundled shares.
Mr Wilson said: “Why pick clean over superclean [given that super clean will drive down costs]? It’s because its simpler to explain and a more common unit across platforms than super clean.
“Moving platforms on clean share classes is easier with clean than super clean... ‘platform B’ might not have super clean which means the client may encounter delays. Ease of doing business is a major factor: it is far easier to re-register a clean share class.
“What the industry needs to do is to make sure the re-registration process for superclean is sorted out properly.”
Mr Wilson added that clean share classes constitute a more “usable currency” than superclean, but he said if he had to choose he would opt for bespoke discounted share options.
“If you [a platform] hold superclean you should hold clean as well to make re-registration possible. We would like to see platforms holding equivalent clean share classes. You don’t want to take away options for advisers and clients to be on their platform of choice.”
Bill Vasilieff, chief executive at Novia, said while “if you look straight at the numbers then superclean will be lower... “superclean is a complete non-event”.
He added: “It’s all about getting a marketing advantage over other platforms and some fund managers have said ‘we are not doing it’, because all you are doing is lowering the price down.”
Elsewhere, Zurich’s research found that potential tax liabilities on unit rebates deter 52 per cent of advisers from using remaining ‘bundled’ share classes.
Mr Wilson added: “Clearly there is a movement away from bundled share classes. The desire of advisers using bundled classes is falling... due to issues of potential tax charges on the rebate and the April 2016 sunset clause.”
ruth.gillbe@t.com
Additional reporting by Ashley Wassall
