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RDR: Investors struggle with switch to clean share classes

RegulationsNearly a quarter of UK retail assets are held in pre-RDR retail share classes that might pay trail commissions to financial advisors, a report has found.

Almost seven years since the introduction of clean classes in the UK, 23% of UK retail assets are invested in fully loaded share classes, while their fees have dropped by 8.8%, according to London-based research firm Fitz Partners.

In 2013, just after the Financial Conduct Authority’s (FCA) retail distribution review (RDR) came into force, over 70% of UK retail assets were invested in these share classes. The figure has been steadily declining since, the company said.

Hugues Gillibert, Fitz Partners’ chief executive, said: “The FCA’s ruling facilitating the transfer of investors to clean share classes 18 months ago has had some effect but maybe not as much as expected since it would not allow an easy switch of some retail investors who would have invested sometimes decades ago through an advisor, still being paid trail commission, and to whom they are still legally tied to.”

Legacy retail share classes and clean shares’ ongoing charge figures (OCFs) have also seen a downward trend over the last six years.

According to Fitz Partners fee data, the average OCF of legacy retail classes for equity funds has dropped by 8.8% when OCFs for clean classes and clean-wholesale classes intended for the largest distribution platforms have come down by 10.1% and 9.8% respectively.

The difference between the legacy retail share classes and clean share classes OCF currently stands at 59 basis points on average across all asset classes.

A further decline in assets invested in legacy retail classes is expected over the coming months, according to the firm.

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