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Bill Vasilieff: Not-so-clean share classes

It would appear some fund managers appear to be looking to put their prices on at least some of their clean funds.


In all the excitement around clean share classes, and the different approaches being taken by platforms, the options around share class conversions look pretty straightforward. First of all a decision needs to be taken on whether or not to handle unit rebates in future and, assuming the answer is not, then it is purely a question of consumer cost and timing on implementing the move to clean share classes.

The decision on whether or not to offer unit rebates is quite simple in my view. Not a single adviser we have asked is at all interested in unit rebates and it is clear the direction of travel for the industry is towards clean share classes and transparency. Consumers will not even begin to understand why they are receiving unit rebates and the continuation of unit rebates just moves us back in the old world of opacity and confusion. Transparency and simplicity are the foundations of a better deal for customers and the faster we move to clean share classes, the better for customers.

What tipped the scales further in favour of clean share classes was HM Revenue & Custom’s decision earlier this year that all rebates, cash or units, should be subject to income tax in future when held in certain non tax-advantaged product wrappers. Any slight financial disadvantage from clean shares is more than made up by the cost of this new tax.

We decided to address the issue of when to convert clients to clean sooner rather than later in a bid to reduce advisers’ workload. We started the conversion programme in October and expect to be finished by 6 April, except with the possibility of a few smaller fund management groups who seem to be having trouble making their minds up on their pricing strategy.

The alternative of letting advisers and consumers, and the disturbance rules on trail commission, decide on the timing will result in confusion and a huge increase in workload for advisers that we would rather avoid.

To complicate matters, there is also still a lot of movement behind the scenes with some fund managers still undecided on what their pricing strategy is, or even changing their minds.

Money Marketing’s investigation last week highlighted the fund managers which seem to be looking to put the price up on at least some of their clean funds, possibly those that are premium products or alternatively are out of line with market rates. If they do, that is the fund manager’s choice, not the platform’s.

The FCA said last month converting to clean share classes should only take place where it is in the clients’ interest, and it has made it clear it does not expect an increase in pricing to happen purely as a result of conversion alone.

In any event, delaying decisions on clean share classes does not get rid of the problem, it just puts it off. Advisers will need to consider lots of different factors on an ongoing basis as to whether actions such as, say, increasing regular payments or rebalancing, constitute disturbance events before they take action.

By moving to clean, we wanted to avoid the very confusing middle ground of delay and disturbance. Different platforms are choosing to follow alternative courses of action but that is their choice.

Bill Vasilieff is chief executive at Novia


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