The FCA has opened the door for platforms to convert bundled, commission-paying share classes to unbundled structures without investors’ permission, in a move which could accelerate the disappearance of trail commission.
FundsNetwork and Cofunds have lobbied the FCA in support of bulk conversion, which would involve moving investors from pre-RDR bundled share classes into ‘clean fee’ share classes after giving them a period of notice in which to opt out, and asked for further clarity on the issue.
Writing in this week’s Investment Adviser (see page 8), Ed Dymott, head of business development at FundsNetwork’s parent company Fidelity, called on the regulator to allow investors to be “migrated in bulk to new charging structures and share classes”.
“To make this work, this would be on an ‘opt out’ rather than an ‘opt in’ basis,” Mr Dymott wrote. “This would accelerate the transition to the new world and deliver a better consumer and adviser outcome.”
The FCA said platforms, as the legal owners of fund units, can convert them in bulk and do not need to obtain consent from end clients. However, the regulator said such a move must be made in investors’ best interests.
A spokesperson for the FCA said: “Moving clients to a cheaper share class, the features of which are otherwise identical to the former class, can be expected to benefit consumers and be in their interests.
“However, if the conversion would disadvantage clients, clearly there is an issue for the firm to consider as to whether the conversion is in the clients’ best interests.”
But platforms have demanded further guidance for cases when funds do not have clean share classes or where consumers refuse to agree to the conversion.
Andy Coleman, director of distribution at Cofunds, said his company “would be a supporter” of the idea of bulk switching, but added that it must be done with the full engagement of advisers.
“The challenge comes when individuals have engaged with good advice and good products in a bundled format and are then asked to unbundle to no material advantage for them,” he said.
Skandia’s UK managing director, Peter Mann, said he expects the transition from bundled to unbundled to “transition naturally” but added he would “welcome further guidance from the regulator around how this process can be made as efficient and simple as possible for us, advisers and customers”.
Under the FCA’s platform funding rules published in April, platforms must stop accepting payments from bundled share classes from April 6 2016.
