The primary share class used to help investors compare the performance of funds in the UK will no longer be the most expensive share class available.
The Investment Association (IA), which announced the move this week, says the decision was “not made easily”.
But the IA says the share class chosen is the most common one used among share classes that comply with the Retail Distribution Review (RDR). It is a share class offered by platforms, the IA says, and accounts for the “most common consumer experience” in terms of fund flows.
The RDR has led to the creation of “clean” share classes that no longer pay trailer fees. Trailer fees were commissions paid by fund managers to distributors.
But the RDR has meant the IA and data providers – Financial Express, Lipper and Morningstar – have had to re-think how to present fund performance data so consumers can compare funds.
In the pre-RDR environment, it was the view of the IA and the main data vendors that the primary share class should represent the most common consumer experience, which was a bundled retail share class reflecting a combination of fund management, advice and distribution charges, which all affect performance figures. Where more than one bundled share class was available, it was deemed that the most expensive should always be used to protect consumers from firms that might want to ‘game’ the figures by presenting favourable numbers.
In a report explaining the decision and its background, the IA defines the primary share class now as “the highest charging unbundled – free of any rebates or intermediary commission – share class freely available through third-party distributors in the retail market”.
After a collection and test period, a date will be announced to make the transition.
Jonathan Lipkin, director of public policy at the IA, says: “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, he says, but the route selected is intended to reflect the most common consumer experience.
©2015 funds europe
