Selecting the cheapest Share/Fund Class
Once you have decided on which fund you wish to purchase for your portfolio, you would assume that it would be fairly easy to go on to your chosen platform and make a purchase. But when you do you so are likely to face a bewildering array of different versions of the same fund. These versions are called ‘classes’ and have suffixes such as Inc, Acc, A, B, C, I, X, Z, or a variety of other identifiers dependng on the platform (there are no commonly accepted standards to guide the wary investor). Selecting the cheapest share or Fund class can save you 50% of the fees for that fund – but how do you decide which one is best for your particular needs?
Income and Accumulation
Perhaps the most simple distinction with classes, and where there is consensus on labelling, is that between the versions designed with income in mind and those focusing on growth (see our section on deciding whether to buy income or growth funds). Those with ‘Inc’ as a suffix will pay a dividend and are designed for those of us who wish to draw a regular income from the dividends produced by the underlying investments. Growth or accumulation versions, bearing the suffix ‘Acc’ are for those focusing on the growth prospects of the fund.
Unbundled or Inclusive
The next filter to apply is to choose between those listed as ‘Clean’ or ‘Unbundled’, and those listed as Inclusive or ‘Retail’ or ‘Ret’. In the past, corporate pension schemes could buy funds at a discount and would have access to the ‘Institutional’ or ‘I’ class of the fund. Normal consumers had to make do with the ‘Retail’ or ‘Ret’ class, which included or was bundled with a commission element that was paid to your adviser or IFA. As a consumer, you had to buy this retail class of the fund, even if you bought direct from the fund management company and did not use an adviser.
This unfair practice of hidden commission has now been banned, and providers have to offer a fund class that has no commission or other hidden charges associated with it. Not surprisingly, these classes are much cheaper, and can save you as much as 1% of the annual fund management charge. However, for at least another year fund management companies can still market the inclusive funds with their high fees, so careful checking is vital.
Marketing and Admin Fees
Even if you manage to find those ‘clean’ or ‘unbundled’ fund classes you can still be met with a plethora of funds bearing letter suffixes. This is because managers like to include admin fees and the costs of marketing into the charges for some funds, and because they create slightly different deals for fund platforms, advisers, pension providers and so on. The underlying fund is exactly the same whichever class you buy, but the charges can vary considerably.
How do you find the cheapest class on your chosen fund platform?
Different platforms go about this in different ways so it takes a bit of hunting. Generally, searching on the name of the fund within the site will return a list of the different fund classes, and the platform’s fund information screen will list the charges (and discounts) available for the particular class selected. As regards which platforms make it easy and which make it difficult, a Telegraph article by Richard Evans from June 2014 on Investing in a fund? How to pick the right ‘share class’ quotes a study by consultancy Platforum into which platform makes it easy or difficult:
Fund shops that make it easy:
Alliance Trust Savings, Bestinvest, Charles Stanley Direct, TD Direct Investing, Chelsea Financial Services and Willis Owen.
Fund shops that make it hard:
Interactive Investor, Hargreaves Lansdown.
Somewhere in the middle:
AJ Bell Youinvest, The Share Centre, Fidelity Personal Investing, Barclays Stockbrokers.
Have a read of the article for a more in depth look but please bear in mind that it is now a year old and that fund shops will almost certainly have made changes and improvements.
The Bottom Line
So – identifying the cheapest fund class is not straightforward, but with the potential to save around 1% in fees on your investment, a little time spent in research on your platform’s web site is definitely time well spent. Good hunting!