The Investment Association has set out plans to introduce a primary share class to compare funds that have several share classes, the organisation’s director of public policy Jonathan Lipkin has announced.
He said: “It is important for there to be a consistent basis available to retail consumers and their advisers to compare funds. There are no easy answers, but the route being announced is intended to reflect the most common consumer experience.”
Outlined in a six-page paper, the proposals require fund managers to display performance figures from the “highest charging unbundled share class – free of any rebates or intermediary commission – which is freely available through third party distributors in the retail market.”
The move would ensure an accurate and consistent approach by the industry to choosing the primary share class that data providers can use to provide performance information to financial advisers and their clients through ranking tables and sector averages.
The paper also addressed the issue of historic track records, as most RDR share classes have only been in existence since late 2012.
Performance figures before the introduction of RDR should use the commission-paying share class performance, the IA paper stated, adding: “Post-RDR share classes should take the track record of pre-RDR bundled retail share classes, without lowering the fees as this would not accurately represent the consumer experience.”
The IA has worked in conjunction with data providers Financial Express, Lipper and Morningstar. Following a collection and test period, the trade body said a date would be announced to make the transition.
|The Investment Association has also launched a consultation to look at how to accommodate the increasing number of outcome-focused funds.|
It put forward two options:
1. To set up a new sector for outcome-focused funds which would sit alongside the existing mixed investment sectors on the basis that both types of funds vary their asset allocation.
2. To undergo a major reorganisation and create two distinct areas: one for asset-based funds and one for outcome-focused funds. A filtering tool for outcome-focused funds would allow users to select certain criteria to compare similar funds.
Jason Witcombe, director of London-based Evolve Financial Planning, said: “The consumer needs to be aware that if they are in an expensive share class their performance would be worse than if they were in a cheaper share class of that same share fund, so I am not convinced that a primary share class will work, because a lot of investors will not be in that share class.”