Written by Ben Cocks on Friday 14 March 2014
A year ago we were all (including me) wringing our hands and dishing out dire warnings about how share class proliferation would bring the investment world to its knees. Customers would be horribly confused, costs would spiral and the nascent re-registration mechanisms would be obsolete. Wind forward to today and the problem simply hasn’t materialised on anything like the scale that worried us all so much.
A quick look at the news over just the last week is enough to see this change. The FCA announced (5/3/14, Fund Web) that unit rebates don’t have to be paid into the same fund as the original investment and a day later we heard (6/3/14, Money Marketing) that Transact will be re-investing client unit rebates in gilt funds or money market funds. This makes handling unit rebates a whole lot easier and consequently the need for multiple share classes is diminished.
Even before the FCA announcement, we learned (3/3/14, Investment Week) that only 9 of the 27 key fund deals from Hargreaves were delivered through discounted share classes. The majority were based on unit rebates. And the announcement from Invesco (3/3/14, Investment Week) that its new Y share class would be available for five of the largest UK platforms suggests that even when preferential share classes are used we might only see one extra share class rather than the array of fine-grained discount levels that would have caused so much confusion.
So in summary it looks like the prevailing wind is blowing us towards unit rebates rather than share class proliferation. Yes, there will be some additional share classes, and admittedly still some confused clients, transfer complications and tax implications, but it probably won’t be enough to require the wholesale operational changes that we’ve been so earnestly discussing over the past few months. Was it all that hand-wringing and those dire warnings that saved us? Well, probably not.