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What are ‘clean’ funds?

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'Clean funds' are meant to make investing more transparent - but what exactly are they?

If you look at brochures from some of the UK’s top fund management companies, you may well spot a new breed of product called ‘clean share class funds’.

The likes of Invesco Perpetual and Aberdeen Asset Management have rushed to launch these products over the past year in response to huge regulatory upheaval in the financial services industry under the Retail Distribution Review (RDR).

The new rules mean financial advisers can no longer accept commissions or so-called ‘trail fees’ that could influence their recommendations.

While clean funds are meant to offer more transparency, many investors have been left in the dark over what exactly they are.

Here, we go back to basics to explain how clean funds work.

Clean funds are meant to provide you with a better idea of how much you are paying and what you are paying for.

They are exactly the same as the original funds but commissions for financial advisers, fund supermarkets or brokers have been stripped out leaving you with just the fund manager fee.

Typically, trail commission, an annual fee of typically 0.5%, was taken out of your investment every year and paid to your financial adviser over the lifetime of your pension, with-profits bonds or funds.

This fee was usually included in the annual management charge, so it was not always clear you were paying it or how much it cost you.

Trail commission covers an on-going service but it is often paid to advisers each year without them reviewing their customers’ investments or providing further advice.

So, if you bought a fund through an adviser before 2013, you may still be paying them indirectly through fund commissions into this year and beyond.

Your adviser does not have to advise you to switch into a non-commission-paying version of your fund unless they conduct a review of your portfolio and recommend changes.

However, some fund companies are automatically switching clients into new “clean” share classes funds, which strip out the commission charges.

Clean share class funds (typically named ‘C’, ‘I’ or ‘Z’) are theoretically supposed to be cheaper than their bundled equivalents.

Stuart Welch, CEO of TD Direct Investing, says: “If someone uses their annual ISA limit every year using a stocks and shares ISA, even if the stocks don’t grow, over a 25 year period using clean funds means they could make £10,000 simply by not paying out the fees from the old funds.”

Clean funds have been broadly welcomed because investors want to know exactly how much a fund costs. 

It is worth noting that these new share classes do not necessarily mean that a fund that used to cost 1.5% will now cost 0.75%.

It simply means that you can now see where your money is going rather than a bundled final amount.

Critics have pointed out that unbundled costs aren’t always working out cheaper for the consumer.

Here are some examples from Hargreaves Lansdown showing that unbundled is not necessarily as cheap as bundled. In some cases they are cheaper.

£50,000 in a SIPP     Bundled      Unbundled   


£10,000 in each fund 


Fund AMC

 £457,00  £282,00
Platform AMC  £162,00  £162,00 
1 fund switch  £25,00  £25,00
2 fund top ups  £25,00  £25,00
Total platform cost   £212,00  £212,00
Loyalty bonus  £187,50  £0,00
Cost to client  £481,50  £494,00










£30,000 in an ISA   Bundled       Unbundled    


£6,000 in each fund

Fund AMC  £274,20  £169,20
Platform AMC   £48,00  £48,00
1 fund switch   £25,00   £25,00 
2 fund top ups  £25,00  £25,00 
Total platform cost   £98,00   £98,00 
Loyalty bonus  £112,50   £0,00
Cost to client  £259,70   £267,70










Here is an example:

The Artemis Income fund charges 1.5% for its bundled share class. The investor does not see this charge directly as it is reflected in the unit price.

Where this is held on a platform, Artemis refunds part of this charge to the platform to pay for the platform admin and to pay the adviser. Broadly speaking 0.75% is kept by Artemis, 0.25% goes to the platform and 0.5% goes to the adviser.

But Artemis Income’s unbundled share classes are distributed to the investor at 0.75%. Note that the investor cannot buy at this price.

The platform and adviser will still charge their fee on top of the 0.75%, which in many cases brings the total cost back up to around 1.5%.

So, that would break down like this – 0.75% product cost, around 0.25% platform fee and then the adviser will also add in their charge on top on that. 



How do you tell the difference between clean funds and the old ones?

There is no typical system in place that signals to investors whether something is in the new cleans share class or not.

If you use an adviser or platform, they will identify this for you. If you deal directly with a fund manager, they will be able to tell you this.

An online broker will state ‘No trail’ or the word ‘Clean’ will appear alongside the name of the fund.


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