Portfolio Adviser • Portfolio Adviser February 2019 v2 • Multiple Share Classes Akin To Budget Airlines

● Kevin Doran refutes accusations of high fees on AJ Bell’s passive multi-asset range

● The CIO compares multiple share classes to buying a cheap flight: headline price is cheap but fees add up

What’s the story? AJ Bell chief investment officer Kevin Doran has hit back at accusations of high charges on the platform’s passive multi-asset range, arguing rival fund groups use multiple share classes to appear optically cheap.

Last month, the platform announced it was cutting charges to a trio of funds within its £142m passive multi-asset range to pass on economies of scale to clients.

But Darius McDermott, managing director of Chelsea Financial Services, said AJ Bell was still trailing on fees compared to larger groups like Legal & General Investment Management (LGIM) and Standard Life Investments (SLI).

Doran told PA that only some LGIM and SLI share classes undercut AJ Bell, which only has a single share class for retail and institutional investors.

He said asset managers offering multiple share classes can look cheap on paper. “It’s a bit like Easyjet. The headline price looks cheap but once you add in the cost of your seat and making sure you actually get your bag on the plane, those fees start to add up.”

PA viewpoint The L&G Multi-Index funds and SLI My- Folio Market funds are between seven and 10bps cheaper than the AJ Bell Balanced portfolio, the most affordable product in its six-fund range, for investors in institutional share classes.

But retail investors pay 21bps more for L&G’s Multi-Index products than the AJ Bell Balanced Fund, which now has an OCF of 0.4%. The funds are 11bps higher than the most expensive funds in AJ Bell’s passive range – Cautious, Moderately Cautious and Global Growth – which each have an OCF capped at 0.5%.

SLI charges retail investors 0.76% for its MyFolio Market funds, however this figure is only 0.37% for retail investors invested via third-party platform shares.

What the industry thinks Mc- Dermott said he compared AJ Bell’s range to institutional charges because they were the main pricing units listed on FE. McDermott said if he was adding a fund to a buy list for his clients, he would expect to be paying the main unit.

FE Analytics said it gives priority to: share classes which are active; have currency matching the fund’s master currency; have a “longer history length”; and favours accumulation over distribution share classes.

The L&G Multi-Index funds have eight share classes with accumulation and income share options available for retail and institutional investors, distributors and advised clients.

Honor Solomon, head of retail EMEA at LGIM, said: “The total cost of investing for our core index and multi-index funds will range from 0.48% to 0.71%. This is an all-in fee and applies to existing as well as new customers.”

Fundscape editorial director Gavin Fielding lays blame with the regulator: “Regulations cause the fund groups to [create too many share classes] to be able to offer discounts to their mates or favoured nation status, whatever you want to call it.”

0.4%

0.76%

0.37%

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Doran: ‘It’s a bit like Easyjet, the headline price looks cheap but... the fees start to add up’