This, they say, is because the new rules would impose significant added work – and thus expense – not only in the form of new share classes with separate net asset values to keep track of, but also in the form of additional Key Investor Information Documents (KIIDs).
A cross-border fund house with 100 UCITS funds, for example, could now have to add two extra share classes for each fund just for the UK market – one for direct investors and advisers who do not use a platform, the other for platforms and large distributors. At a minimum, this would treble the number of share classes, and KIIDs to go with them, although the number could rise if additional share classes were added for popular alternative currencies.
Franklin Templeton, one of the few asset managers ahead of the clean share class curve, recently unveiled an “expansion” of its Z share class range and a “completely new W share class” for all its OEIC funds and a “selected” number of its Sicavs – covering a total of 29 funds in all. This involved a total of 64 additional share classes, a company spokesman said.
June consultation paper
The rules were unveiled in June in a Financial Services Authority consultation paper detailing how payments to platform services providers and cash rebates from providers to consumers are to be handled once the Retail Distribution Review (RDR) takes effect, after 1 Jan 2013.
However, the changes affecting the way platforms are paid by the fund companies would not come into play until 12 months after that.
John Pauly, chief executive of the Luxembourg-based Moventum platform, which provides own-brand and white label platform services to both UK and international customers, is among those who say the share-class element of the RDR roll-out has been overlooked by many, at least until now.
He believes that while the principle of adding new share cases to accommodate RDR seems “pretty straightforward”, the ultimate measure will lie in such details as how existing funds will be accommodated through “grandfathering rules”, and notes that it “remains to be seen how the backyards of market participants are going to be affected”.
“This may end up becoming a serious blow to the whole idea behind UCITS, as the proliferation of share-classes is making the cross-border distribution more complex and more expensive, both for foreign fund companies coming to the UK, and for UK fund groups going abroad and impacting smaller groups more than larger groups” he added.
“Ultimately, the choice of the investor will go down, which may not have been the intent of RDR”.
Jarkko Syyrilä, deputy director general of the European Fund and Asset Management Association, said EFAMA’s concern is with the idea that member states “[take] their own approach [to the] distribution of financial products, while at the same time European rules are being drafted, in the form of the Market in Financial Instruments Directive II and Insurance Mediation Directive II”.
“It is not good for the future of the Single European Market that countries go their own ways before Europe rules,” he added.
ALFI: ‘no big issue’
Not everyone believes that having to comply with the RDR requirements is going to be much of a problem for non-UK fund promoters. A spokesman for the Association of the Luxembourg Fund Industry, for example, said that organisation believes there is “no big issue” to be resolved over clean share classes, because the large fund promoters most likely to be affected by the RDR requirements “will very likely already have "clean fee" (i.e., no rebate) share classes available in their Luxembourg range”.
“[They] will simply make these share classes available to the UK intermediaries who are no longer permitted to receive commission,” the spokesman said.
“The change is therefore a matter of co-ordination/transition management, and not something that will cause us to launch many new share classes.”
Multi-national clients
The reason Franklin Templeton took the decision to launch its clean share classes well ahead of the required deadline was two-fold, according to Ian Wilkins, UK country head for the company.
"Firstly we needed to ensure our UK-based clients had ample time to integrate the new share classes before [the] deadline; secondly, as a major global asset manager with a wide footprint internationally, our book of business comprises a number of adviser clients who are UK based but who are part of much larger, global organisations, and because of this, needed plenty of time to prepare."
Wilkins said Templeton had sought to give all its platform clients, adviser clients and their underlying clients maximum clarity and flexibility.
At the same time, “within our client base, we understood that multi-national players are implementing RDR in their businesses, and making implementation decisions which extend the scope of RDR significantly.
“When you ally that to the fact that our proposition is a combination of UK OEIC funds and Luxembourg-domiciled SICAV funds, then you must consider the multi-jurisdictional, multi-currency needs of these organisations."
At Franklin Templeton, the new “clean” share classes of one of its OEIC funds come with an annual maintenance charge of 0.95% for direct investors and advisers, and 0.75% for platforms and large distributors.
‘Possibility’ of still more share classes
Wilkins said Franklin Templeton’s UK business is satisfied with where it is at with its clean share classes, but does not rule out the possibility of adding more. “We continue to talk to our distributors, and about their needs and how they are implementing RDR,” he said.
“Any additional share classes we add are likely to be a broadening of the range that we now have out there, on a multi-currency basis, on our SICAV.”
One thing he is adamant about is that the new share classes will not result in fewer Franklin Templeton products being offered.
“In terms of our business model, it is all about making sure that we’ve got the right product shape and breadth of offering for all our clients,” he said.
