Following various FSA papers it is the FCA who published the final guidance after a number of industry consultations, resulting in changes to how the industry deals with the rebate within a unit. As has been well documented, the reinvestment of the rebate into a cash element of a client’s plan is no longer permitted from April of this year – for new money at least – and at the same time platforms are unable to retain the rebate for themselves – again for new money.
In the first quarter of 2013 HMRC issued guidance confirming the rebate, whether made as cash or reinvested as units could give rise to an income tax charge in the hands of the investor. And so the launch of new units gathered pace as more fund houses launched new share classes referred to as clean share classes.
One thing is for sure, clean share classes are certainly more straightforward for clients to understand, supporting our journey to transparency. With no rebate included in the price, this share class only contains the cost of fund management and with no rebate there is no consideration needed of the tax the investor may otherwise have incurred.
Of course, there is no trail commission paid either, as now, post-RDR, advisers have transitioned business to adviser charging.
Interestingly the annual cost of clean units for clients has fallen, although not in all circumstances as fund managers may not be willing to offer ‘best’ terms to all.
We have been on quite a journey and made strides in reducing complexity. But with many fund groups making clean share classes available, it is important we do not interchange terminology that infers that unbundled and clean are seen in the same light.
This is no doubt a matter of personal opinion. For instance, looking back at how clean share classes have been described here, I have heard mentioned that a unit is clean if the rebate has been reinvested. But in my opinion, just because the rebate is no longer retained by the platform provider does not make it clean.
