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Rathbones: Post-RDR performance figures could mislead investors

27 November 2012

The launch of “clean fee” share classes could distort data by showing that the traditional versions of funds have significantly underperformed new share classes with lower charges.

By Jenna Voigt,

Features Editor, FE Trustnet

Rathbones’ David Holloway has called for a debate about how fund performance will be reported post-RDR.

Under regulatory changes that will come into play at the start of 2013, commission charges, or fees paid back to an adviser from fund management groups, will be banned.

Many fund-management firms have responded by rolling out "clean fee" share classes that separate and reduce charges, as they no longer carry trail commission.

ALT_TAG Holloway (pictured), marketing director at Rathbones, was surprised to see the issue of performance reporting being played out in the press before a discussion had taken place among industry bodies.

"The issue needs a proper debate between the companies that dictate on these matters," he said.

"We expressed disappointment we weren’t consulted because we raised the debate a year ago."

"You can either continue with the existing performance and glue on the new charges or you can go back and adjust for the new prices," he said. "It was the latter solution that we came to."

"We believe you can’t compare apples with pears by gluing together two separate share classes."

Holloway says keeping the past performance without adjusting for the new charging structure would be "misleading" for clients, who would not get an accurate representation of what their experience would be in future.

He stresses the industry is not calling for manufactured prices, but rather adjusting for a different set of price data.

"It would be misleading to say this is the i-class performance but this is the r-class performance before," he continued. "Gluing together various series just isn’t representative of performance."

Holloway says the way performance data is calculated needs to be clearly communicated to consumers in order to promote the underlying principle of regulatory change: transparency.

ALT_TAG In a recent FE Trustnet poll, 72 per cent of respondents said past performance was more important when buying a fund than low charges, making it key for the industry to not only come to a consensus on the issue, but to also find a way to accurately represent an investor’s experience.

Sam Walker, data director at FE, says there needs to be industry-wide consistency in fund performance reporting, and that FE is currently speaking to different groups about this issue.

"FE suggests the fund provider needs to be the guardian of this past performance, not the vendor."

"Any extension to the performance data of a fund provided by the group should also be demonstrably derived, and have consistency with their administration system," he commented. 

"This same policy has been applied in the past by groups Europe-wide. It has also been implemented before in a similar fashion with the ABI’s indicative net share classes."

"Many groups have and are converting their institutional share classes to RDR share classes, and will therefore have performance history based on very low charges."

"For those groups who have launched brand new share classes, if they simply glue on the unadjusted past performance, they will be at a major disadvantage to those who are converting from institutional share classes."

"Many funds will leapfrog others in performance if we go down this path."

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.