You may have seen the term “clean” or “super clean” funds in the news recently. What this refers to is the “unbundling” of fund manager charges and the shift on to a new charging structure.
To “clear things up” (no pun intended), it may help to first explain what a “dirty” share class is.
Historically a fund manager has made an annual management charge which included the cost for actually managing the fund as well as an additional provision to pay some money to a broker for introducing the client to the fund. For clients who use online platforms, the fund manager will often rebate some of the total charge to the platform as an incentive to introduce more clients to the fund manager.
This old system was rather “muddy” (I’m really on a roll now) to say the least so the FCA has seen fit to introduce a new charging structure. So called “clean share classes”.
Under a clean share class you pay predominantly for the costs of fund management and as such there is little or no rebate paid to the platform. Consequently, most platforms will now charge an explicit fee for their services.
The idea is that charges should be clearer and more transparent, however due to the number of deals being done between fund managers and platforms, that ambition has only been partially realised.
Investors should review their investment holdings without delay in light of these new charging rules, in some cases a switch into the new “clean” share classes will be beneficial. For those investors in tax wrappers (ISA’s and pensions for example) it may be better to remain in the old “dirty” funds.
If you would like tailored advice on your investment holdings, please get in touch to arrange your discovery meeting, provided at our expense.
