Blog: Clean share prices? It's a black and white case

Cofunds head of commercial, Russell Lancaster, says clean share classes represent the ultimate in transparency.

I appreciate that with most things in life there lies, between black and white,  numerous shades of grey and that we should look to compromise.

However, there are some areas of financial services where grey has no place or justification. A platform's response to the following question on pricing is one of them: ‘Do you have the client and end customer's best interests at heart or those of the fund managers?'

The talk around how a clean share class will supposedly restrict client fund choice is, to my mind, an attempt to introduce some grey into what should be unequivocally black or white.

In an unbundled world, a totally clean share class is as transparent as it gets. It allows the investor to see exactly what they are paying for with each element. Anything else, including a unit rebate structure, doesn't come close to this level of transparency and as such falls short of what is in the client's best interests.

In September last year we made it known that we had approached the fund groups about our desire to have a completely clean share class.

RDR

Contrary to what a number of platforms have been saying, fund managers get not only the inevitability of a clean share class world but also the need to comply fully and unequivocally with the spirit of RDR, accepting that it won't be cheap to do!

We've met with over 40 fund management groups and the response has been overwhelmingly positive. Many are planning to reposition their institutional share classes.

Within the umbrella of an OEIC structure, a new share class can be introduced in a matter of weeks. As Schroders' Robin Stoakley was quoted as saying on the launch of their Z Class funds: "The most efficient way to operate with platforms [under RDR] will be clean-fee classes. [...] This was not a cheap exercise but Schroders is a group that wants to make sure we are as ready as we can be for the RDR."

Fund managers, understandably, are looking to future-proof their own businesses. Many see clean share classes as the future - enabling them to support platforms and intermediaries in complying with demands for clear, transparent retail charging.

Cost

Of the managers we have met, the vast majority, like Schroders, are looking to launch a completely clean share class in the next few months. A small minority are looking to deliver a commission-free share class that won't include adviser costs but will continue to integrate platform and fund management costs, with the end result being the customer pays the same net price as the clean share class.

To argue, as some have, that not having a clean share class gives people freedom of choice begs the question, who are the people they are talking about? Surely not the end investor?

At Cofunds, we have our sights set firmly on a completely clean share class and full transparency - we will continue to push this debate and encourage others to follow so that we grind out the grey.

Rightly, some have made the case for considering the total cost to consumers when assessing the TCF ramifications of any pricing changes.

On this point I couldn't agree more. We need to stop getting hung up on annual management charges (AMCs) and instead deconstruct total expense ratios (TERs). Building functionality to support TER discounts is a good starting point.

Right now, fund managers are reviewing pricing across all of their distribution channels and I strongly anticipate that this is where the competitive benefit of unbundled charging will become most apparent for the end-investor.

And that, after all, is all that matters. It's black and white.