The row between platform providers over the desirability of these rather daftly named ‘super clean’ share classes is interesting.
It highlights a fuzzy inconsistency among platforms about what they are, and what advisers want from them. Whose role is it to negotiate fund charges down? My view is it is near impossible for advisers to do this in a direct way with cash rebates removed, given the resistance to creating new share classes.
Anecdote would have us believe fund manager costs are coming down. Typically, active managers are earning an extra 12 or so basis points from the move to clean share classes and data from Lipper shows that the average total expense ratio (TER) has risen during the period 2001 to 2010 from 1.5 per cent to 1.7 per cent. How confident are we that market forces are driving costs down?
Platforms can act, and if (and it’s a genuine if) TERs aren’t pushed up indefinitely to compensate and re-reg issues can be resolved, I see no reason why they shouldn’t. Competition law forbids platforms from collaborating on price issues, so it’s healthy to see debate and competition on this subject.
Some platforms see this as an opportunity to steal competitive advantage, but I don’t see that as a bad thing if the end result was advisers and investors being able to access lower cost share classes on all platforms.
Phil Young is managing director at threesixty services
