More than a third of the assets owned by UK retail investors are in share classes that continue to pay trail commission to advisers, according to data from Fitz Partners, a consultancy firm.
The Retail Distribution Review (RDR) regulation, introduced in 2012, forced asset management companies to introduce “clean” share classes, which did not offer commission to the advisers selling the fund, in order to remove any potential conflicts of interest that could work against the interests of investors.
Since then the onus has been on advisers, investment houses and platforms to encourage investors into the newer share classes when it meant the investor would get a better deal.
But six years since the rule change 34 per cent of retail assets are still held in these old-style funds.
"The proportion of retail investors’ assets in UK funds invested in fully loaded share classes that still pay trail commissions to advisers remains high," Hugues Gillibert, chief executive at Fitz Partners said
"Retail investors might be missing out on potential savings and better returns."
Fitz Partners claimed the difference between the legacy retail share classes and the so-called clean classes OCF (ongoing charge figure) has varied between 0.53 per cent and 0.57 per cent.
It estimated the excess cost to investors in the form of trailing fees bundled in the retail classes to be £890m.
"The Financial Conduct Authority has covered this issue in its latest Market Study and we hope it will consider facilitating the transition to clean classes in its new release due next month,” Mr Gillibert said.
Retail investors should move their investments into cheaper clean classes only once they are sure the extra total cost of access through a platform or IFAs remains under the current differential between clean and retail classes’ ongoing charges figure, which currently stands overall at 0.55 per cent, he said.
A third of retail assets in commission-laden funds six years after the introduction of the RDR is unlikely to be what the FCA wanted, but this number is falling every year.
According to Fitz Partners the data showed the percentage of these retail assets in 2013 was over 70 per cent.
Since 2013, the first year of RDR, the proportion of assets held in the old share classes has come down steadily by about 10 per cent every year and the latest Fitz Partners’ data confirms this trend with a decrease from 42 per cent in 2016 to 34 per cent for 2017.
Alistair Cunningham, financial planning director at Wingate Financial Planning, an intermediary firm in Surrey said: “Assuming all commissions and the like are being rebated, post-RDR share classes are not automatically cheaper than pre-RDR ones.
"Most platforms have abolished and converted the non-clean classes, but it not necessarily in all unit holders interest to swap.”
David.Thorpe@ft.com
