pa analysis how clean is your share class

A TV programme many of us had a morbid fascination with in the noughties was Kim Woodburn and Aggie MacKenzie’s ‘How clean is your house?’.

pa analysis how clean is your share class


I moot the chief reason for its ratings success between 2003 and 2009 was relief from the majority of viewers that there were people with an even stronger dislike of housework than themselves.

In the same way, the announcement by Fidelity that it is only launching a clean fee share class across some of its range and for clients running a discretionary service has been laughed at by those fund houses rolling out unbundled share classes across the board, because it makes them look better.

Sticking out like a sore thumb

I must admit, it seems a strange move for Fidelity to have made given the majority of its competitors have opted to go down the unbundled route and offer 0.75% share classes to provide the end investor with greater transparency.

What makes Fidelity’s half measure odder is its timing. Approximately three weeks ago the FSA published a Consultation Paper which largely reaffirmed its plans to ban platform rebates from January 2014.

Okay, that is still nearly 18 months away and okay, it is not final guidance, but most fund and platform providers have seen the Consultation Paper as an indication of what is to come and started to plan ahead for its ramifications.

Verona Smith, head of proposition at Cofunds, says her firm has made no secret of its support for clean share classes as they make it easier for the end investor.

Prior to the release of the platform Consultation Paper some firms were holding back from confirming their share class plans, but in the past couple of weeks alone Henderson, Baillie Gifford and Standard Life Investments have all announced their ‘RDR-ready’ propositions.

So why is Fidelity dragging its feet?

Ben Waterhouse, head of UK retail at Fidelity, has not ruled out making the unbundled share class more widely available in time, but he also said the company was happy working with what it had in place already until clarification is given by the FSA.

"We will watch and see how the market evolves. If we were to see strong demand for unbundled we might do that. A lot of our product development is in house, so we are not reliant on third parties and we can react quite quickly if necessary."

For the time-being then Fidelity is going to maintain a 1% share class for advisers who buy its funds through platforms, which will continue to rebate approximately 0.25% to the platform for its services.

The head of UK retail from another fund group says: "For us it has always been obvious, what we have always been happy to take for running a fund is 0.75%, why should it be any different in a post-RDR world? Why should it go up and why should it go down?

Our source said it is even more surprising given the decision by Fidelity’s platform FundsNetwork to publish unbundled charges on its own platform, meaning there is a slight double standard with what it expects other platform providers to do.

"In 18 months’ time I predict the industry will stick at 0.75% [for the clean fee share price average] and Fidelity will be nearer to 0.75% for IFAs. Why are they [Fidelity] introducing complexity?" asks our source.

Legacy books and business models are both possible factors, with Fidelity potentially concerned about upsetting big institutional investors by giving retail investors the same price.

"While there is a standard pricing level starting to emerge there is not a standard business model to implement that pricing," our source concluded.

Do you think 0.75% is likely to become the default charge from fund providers for their AMC? Is Fidelity muddying waters by sticking with 1% including a 0.25% rebate, or do most advisers know how the charging breaks down anyway? Use the comments box below…



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