So yesterday Architas, the multi-manager arm of AXA did something a bit unusual. It decided to offer investors on Elevate or Cofunds’ institutional platform access to a new share class on its funds. You can read the story on Fundweb here.
Nothing that unusual about launching a new share class except that this one has a zero AMC. Nothing. Nada. Bupkiss. It does, however, have a 2% upfront charge, and additional expenses of up to 0.2%.
Now this is interesting. Zero plus upfront is according to les gars at Architas, better for investors who hold the fund for more than 4.5 years. So that’s fine (I’d like to see the average holding duration, but that’s for another day). The PR-approved quote for the release of the share classes was this:
We want to give advisers and investors a number of options for them to deliver the best and most appropriate service to their clients.
Now, I don’t know about you, but whenever I hear a provider talking about ‘options’ and ‘choice’ my spidey-sense starts to prickle. And it is especially spidey-prickly when the provider concerned is one who has just been caught by PS13/1’s banning of free platform type deals where you invest in certain funds.
Both AXA and Architas have enjoyed strong flows from the deal they’ve had on the go for a year or so now, invest in the Architas funds and get a rebated platform charge which was 100% and is now 75%. That structure has to go by the end of the year, and here’s something which looks like a replacement.
On illustrations, a low ongoing charge will always trump an upfront; such is the nature of compounding arithmetic over time. In this case the lines cross at 4.5 years; I haven’t tested that out but I’ll assume they’re not lying. So in RiY terms Architas on AXA is going to look very good indeed. It’ll be hard to beat when looking at placing business, and hard to justify moving away. Of course, real life doesn’t have much to do with illustrations – don’t want to spoil that for anyone, sorry, so the real value will just be about how long you hold it.
So this is Architaxa’s (just made that up, quite pleased) response to the ban in PS13/1. It’s telling that the only place a retail investor can get this is Elevate; they’re in discussions, with other platforms but who knows how long that’ll take? They can be tricky, these discussions. Take ages, sometimes. Tricky.
Zero share classes as a concept are interesting too. One thing Architas could do is make them available to other platforms, but insist on an additional charge, to be collected explicitly from the client and remitted to Architas via the platform. So 0% to Architaxa clients; maybe 0.1% to ABC BigWrap clients and 0.2% to XYZ WeeWrap clients?
Nothing around to say that’s the plan, but it wouldn’t be beyond the wit of man to see this as the thin end of that particular wedge. Architas may have just fired the starting pistol for the way to get differential share class pricing on platforms.