The impact of the fund class on an investment

milleniumaire

While in the process of removing my agent/IFA from my investment funds as a result of them being complacent and not providing any active advice, I'm now working through my funds to decide what to do with them.

One fund I have, which was invested in 2006 is the following:

AXA Global Sustainable Managed R Acc

This fund has a 1.31% annual charge.

There are other classes of this fund available with lower charges and I've been looking at this one:

AXA Global Sustainable Managed Z Acc

This class of the fund has a 0.69% annual charge, so nearly half of the R fund.

Initially, I thought switching from the R class to the Z class fund was a no-brainer as it would reduce the charges, leaving more value in the fund to grow and I wonder why this wasn't done back in 2012 when the Z class version of this fund was introduced.

I had assumed as these were the same fund, they would therefore have the same underlying investments and the class of fund simply introduced differences such as minimum investment amounts and different charging structures. However, having compared the performance of these two funds it would "appear" that the Z fund is doing much better than the R fund.

I appreciate this could simply be due to the lower charges, but are there any other factors I need to be aware of that exist between different classes of the same fund?

Am I right to assume that a different class of fund with lower charges is always preferable within the same fund, so the Z class will always be "better" than the R class?

dunstonh

While in the process of removing my agent/IFA from my investment funds as a result of them being complacent and not providing any active advice, I'm now working through my funds to decide what to do with them.

Seeing as you have a pre-RDR share class, there is no requirement for them to provide pro-active advice. If you were on post RDR share classes, they would have been required to. (caveats apply - some covered below)

Initially, I thought switching from the R class to the Z class fund was a no-brainer as it would reduce the charges, leaving more value in the fund to grow and I wonder why this wasn't done back in 2012 when the Z class version of this fund was introduced.

It will vary with platforms and the service you agreed.

In some cases, its cheaper to remain on the more expensive bundled share class than convert to the cheaper unbundled share class. So, it cannot be done automatically.

It also depended on the tax wrapper and if you retained the IFA or not. Pensions and investment bonds (onshore or offshore) didnt need changing whereas ISAs and unwrapped did. If you didn't retain the IFA, then the commission would stop being paid to them and rebated within the plan or there would be an automatic share class conversion to a no-trail version.

If you were not on an investment platform but directly with the fund house, then it would be different again.

I had assumed as these were the same fund, they would therefore have the same underlying investments and the class of fund simply introduced differences such as minimum investment amounts and different charging structures. However, having compared the performance of these two funds it would "appear" that the Z fund is doing much better than the R fund.

I am not seeing a "much better" difference. The difference equates to about the difference in fund charge, which is exactly what you would expect.

However, you do need to take into account that the bundled share class won't have a platform charge to think about, whereas the unbundled share class will have a platform charge to add on top.

Am I right to assume that a different class of fund with lower charges is always preferable within the same fund, so the Z class will always be "better" than the R class?

No. That is an unsafe assumption.

You need to look at the total costs of the existing vs the total costs of the alternative, along with factoring in any rebates you may be receiving.

Remember that the bundled version includes adviser commission and platform commission. Has your platform been retaining that instead of charging a fee. Or have they been rebating the commission and charging a fee. Has the adviser been receiving the commission or has that been rebated?

Sometimes, the rebates on bundled share classes resulted in lower overall costs.

The difference in unbundled to bundled is 0.62% on that fund.

With the adviser commission being 0.50% and the platform commission being around 0.25%. That is a total commission of 0.75%

So, it could be cheaper to stay on the old share class and take rebates.

milleniumaire

Thanks for the detailed response.

This investment is not within a platform it is directly with AXA Investment Managers, so as far as I'm aware there is no platform fee to consider. This fund also doesn't pay rebates as far as I can tell, unless this is done through the unit price and isn't transparent, but there's no mention of rebates on any of the fund documents.

I've gone ahead and switched from the R class to the Z class and will work through my other investments to see if fee savings can be made. I'm also considering moving some of my investments onto the Quilter platform, which I already use, where my investment doesn't meet minimum investment requirements, so that they can benefit from classes with lower fees and in this case I understand there will be platform fees of around 0.2% to take into consideration.

I have many other examples of the lack of service I have received from my IFA and despite them receiving £1,000's per year in agent fees from my many investments, they have provided no useful advice in the last 5 years and so it is time to cut them loose.

darkangelllll

You’re thinking about it the right way but there’s a bit of nuance here.

With different share classes of the same fund, the underlying portfolio is typically identical - same holdings, same strategy, same manager. The main differences are things like fees, minimum investment, and sometimes access (for example, institutional vs retail classes). So in principle, yes, a lower ongoing charge should translate into better net performance over time.

What you’re seeing in performance between the R and Z classes is very likely just the compounding effect of that fee difference rather than any structural advantage in the investments themselves. Even a ~0.6% gap annually adds up quite noticeably over years.

That said, the reason you weren’t moved earlier is often down to distribution - Z classes are usually clean or institutional share classes and aren’t always available through certain platforms or advisers, especially older setups. Some IFAs historically kept clients in higher-cost classes because those included commission.

So no, lower cost within the same fund is generally preferable but it’s still worth checking practical things like whether there are switching fees, tax implications (depending on wrapper), and whether your platform actually gives you full access to that class.

Rollinghome

There are 8 different versions of that fund with the OCRs ranging from 0.57% to 1.32%. Details for that and most other funds etc. are listed at https://www.trustnet.com/factsheets/O/11vl/axa-framlington-global-sustainable-managed-fund/

Click on the "All Units" tab and scroll down for charges.

Regardless of the class the funds will be the same. The difference in charges depend on a number of factors including the volume of business with the platform and whether it was priced to include sales commission paid to a financial adviser. Sales commission on funds was banned due to the conflict of interests by the FCA/FSA following their RDR (the Retail Distribution Review).

Fees make a huge difference over the years, so the default should always be to get the lowest charges you can, unless there is a clear reason to pay more. Often, platforms will have the lowest price for one fund but not another. Some may offer "loyalty bonuses" but these are taxable outside an ISA and can have other complications so a straight lower price is preferable.

milleniumaire

When I originally compared the performance of the R and Z classes I thought I had seen a large difference, which did confuse me and prompted my original question. It's possible I saw that with a different fund as I've been comparing a lot of funds this week. Having compared the two classes of the same fund again yesterday, there wasn't as much difference as I thought, but the Z fund was definitely doing better. As the R fund has been around much longer than the Z fund, comparing ALL time is pointless, so I compared shorter periods of time and the performance graphs are very similar, and as you say, I suspect the improved Z class performance is down to the lower fees.

I had wondered if the reason for not switching to the Z class was due to restrictions of minimum investment amounts or even due to having an Agent named on the investment. While on the phone to AXA I was told there were no such restrictions for switching and there never have been, so I can only assume the reason the switch hasn't happened is simply because the agent hasn't been pro-active in managing my investments.

There are lots of other investments I have that are also in higher cost "retail" funds.

As a first pass I'm looking to switch where appropriate and will transfer some into the Quilter platform, since some of the lower cost classes of investment have minimum investment amount restrictions, but these don't apply to the Quilter platform. I'm aware there will be an additional cost involved in holding these investments in Quilter, so this will be taken into account.

Once I've gone through this process I will then start looking at fund performance and decide if I should move any of the funds. Most of them have been untouched and in the same fund for over 20 years.

dunstonh

This investment is not within a platform it is directly with AXA Investment Managers, so as far as I'm aware there is no platform fee to consider.

There will usually be some fee if you switch to the unbundled share class. So, you need to find out what that is. Most fund houses have either an in-house share class that is more expensive than the clean share class or they charge an explicit fee instead.

Class R 1.32%

class Z 0.69%

class ZI 0.57%

class D 0.97%

I have had a quick look and it appears class Z is the clean share class with ZI being superclean. So, you would expect AXA to have a separate charge. Unless they are doing it for free (which is possible but unusual with fund houses).

This fund also doesn't pay rebates as far as I can tell, unless this is done through the unit price and isn't transparent, but there's no mention of rebates on any of the fund documents.

It its directly with the fund house, then its usual for pre-RDR share class to have the platform commission retained by the fund house and the adviser commission either paid to the adviser or if the adviser is no longer attached, then the fund house retains it.

I have many other examples of the lack of service I have received from my IFA and despite them receiving £1,000's per year in agent fees from my many investments, they have provided no useful advice in the last 5 years and so it is time to cut them loose.

The IFA is not required to provide any servicing on pre-RDR products/investments unless you entered into a formal agreement for them to do so.

Typically, you find that pre-RDR was reactive whereas post RDR is pro-active. From 2013-2018 there was no defined timescale on any activity, other than what you agreed. Post 2018, it became "at least annually" but only on post RDR (caveats apply with some scenarios).

With a bundled share class, they are not receiving fees. They are receiving commission. If they were receiving fees, you would have every right to ask for those fees back. But with commission, you don't unless you specifically entered into a contract that used the commission to offset fees and that contract set out the work that would be covered.

In reality, fee and service contracts didn't exist with most firms until just before RDR. So, in all probability, there was no service standard agreed upon between you, and that would explain the lack of service.