What are clean share classes?
What's changing and why?
Following its Retail Distribution Review, The Financial Conduct Authority (FCA) is bringing in new regulations to give consumers greater confidence and trust in the retail investment market. One of the changes is to remove the payment of 'trail commission' by Fund Managers to companies who introduce business to them.
New clean share classes
Historically, fund investors have had to pay for trail commission, as fund managers included it in their annual management charges (AMC). This AMC is typically in the region of 1.5% and charged within the fund, so it's not a fee you'd have to pay separately. Some of the AMC, between 0.3% and 0.5%, was used to pay commission to the promoting broker, such as ourselves.
However, ‘clean share classes’ within funds are now in existence which have a lower AMC (in the region of 1%) since they don’t have to pay trail commission any more. As you’ll be paying a lower AMC, the performance of your investment should improve, although of course this is not guaranteed.
The majority of fund managers are introducing funds with clean share classes, with these replacing the existing trail commission-paying classes. In fact, all of the funds available on our website are now clean funds, so just use our advanced fund finder to find the right fund for you.
What are the advantages of funds with clean share classes?
- Lower fund charges
- Transparent fee structure
- Potential improvement in fund performance (due to lower charges)
- Easier comparison of charges between funds
What is a platform fee?
Many of our competitors will need to replace the income from not receiving the trail commission from fund managers. They will do this by introducing a new charge called a 'platform fee'. This new platform fee will likely be a percentage charge based on the value of your fund investments, and could be in addition to any other administration fee you pay. Charges are likey to range from 0.25% to 0.50%, so if you have a large value holding you could end up paying a high charge to your existing broker.