English version N. 60 Documenti  (June 2007)
JEL Classifications: G2

CONSOB, Financial Intermediaries Division - Investment Management Department

Cristina Bracaloni

Maura Antinarella

Francesco Martiniello

Toni Marcelli

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This paper examines the marketing of harmonised UCITS in Italy through the use of classes of shares (or units). Operators may use classes to structure funds and SICAVs in order to differentiate the ways in which investors participate in the same fund or SICAV. More specifically, through the use of shares classes, operators diversify the offering conditions, such as, for example, the method for paying fees, the minimum required investment, and the investor categories. The components of total costs of a UCITS combine to determine the (net) yield of the investment, and, in consequence, are of fundamental importance in selecting both the fund and its classes. A negative return on investment, or, more simply, a return that does not meet the investor’s expectations, may be the result of the risks taken into account when the investment was made, or may also be the result of an improper assessment of the fund's cost components due to the level of difficulty in comparing the conditions offered by the various available classes. An analysis was conducted involving a sample of the leading UCITS authorised by supervisory authorities in other European Union member states and selected by virtue of the number of funds marketed in Italy. The results of this analysis point to significant shortcomings in disclosure concerning both the "completeness" of the information about classes and the "comprehensibility" of this information. As concerns the first parameter, the analysis indicated significant information deficits regarding the features of the classes. These deficits were so great as to cast doubt on the very existence of the supposedly objective criteria that ought to justify the creation of the classes themselves (along with the associated fee schedules) and, consequently, on the different treatment of the holders of units/shares of the same fund (but belonging to different classes). As regards the degree of "comprehensibility" of the information about the classes - which may only be assessed where the requirement to provide complete information has been met - the analysis indicated an equal amount of shortcomings mainly due to the difficulties encountered by investors in assessing the economic expedience of the various available classes. This latter aspect confirms the modest degree of sensibility shown by the various management firms/SICAVs towards ensuring the full disclosure and comparability of the characteristics associated with the classes of a single fund. Moreover, shortcomings in operating practice were also observed in terms of the existence of fee structures associated with the same UCITS that were not consistent with the characteristics of the classes. Lastly, further deficiencies came to light in the area of the conduct of distribution networks in connection with the existence of incentive systems, primarily fee remittance agreements under which the distributors would not seem to be "impartial" in distributing certain classes of the same fund instead of others. Clearly, classes with more expensive fee structures serve to increase the distributor's total remuneration, and therefore result in circumstances in which distributors are not "impartial". Given the considerable extent of the shortcomings, whether related to disclosure or other issues, associated with the use of shares classes, the hope that regulatory action may be taken seems wholly justified, especially at the Europe-wide level, in order to harmonise the objective criteria applied to the use of shares classes and ensure greater disclosure of information.