Standard Life will use an untaxed rebate to ensure clients on its wrap platform do not pay more for clean share classes as it begins converting all clients to clean share classes.
Standard Life has today (1 November) begun bulk converting clients to clean share classes, with the process due to continue until all funds have been moved to clean versions.
However, in response to guidance from the Financial Conduct Authority saying clients should not be converted if they would end up paying more, Standard Life has revealed it will keep a small rebate in place to cover any difference that may exist.
The rebate is a temporary measure to ensure clients do not lose out in case the conversion is not in their best interest and is set to remain in place until Standard Life negotiates discounted or ‘superclean’ rates.
Standard Life had previously promised to pick up the tab on any tax payable on rebates.
However, a spokesperson for the company told FTAdviser that because the rebate is used to offset charges and never falls into the hands of the client, it is not subject to the rebate tax announced by HMRC this year.
Standard Life recently recovered from a technical error which prevented client investments being automatically moved into clean share classes during portfolio rebalancing. The error was fixed over the course of last weekend.
The problem of clean share classes being more expensive than their bundled counterparts has been a source of concern for platforms.
Skandia recently found that clean fee share classes are on average 6 basis points more expensive than their bundled counterparts, and said it would negotiate preferential rates to mitigate this.
James Hay Partnership, which had previously promised not to switch clients unless they would be paying less in the unbundled share class, claimed one in three clean funds were more expensive than their bundled versions.
Stephen Wynne-Jones, head of marketing for Cofunds, said that the platform would go ahead with conversions even where the total cost of investing in clean share classes would be more expensive.
Although Cofunds is presently considering the implications of the FCA’s guidance, Mr Wynne-Jones said it will not bulk-convert clients. Instead the platform will make the switch only when explicitly instructed by an adviser. This places the responsibility on the adviser for making the client aware of the possible repercussions of switching over.
Raymond James will also refrain from forcing wealth managers to convert clients, instead allowing them to wait until it is in the clients’ best interest to do so.
Cynthia Poole, director of relationship management and business support at Raymond James, said: “We have found that in the vast majority of cases, a conversion is neutral to the client. For example, where a retail share class currently has an [annual management charge] of 1.5 per cent with 0.75 per cent trail paid, the clean share class is generally 0.75 per cent AMC.
“There are a few anomalies where the clean share class may be more expensive, but in our experience and based on our holdings, those anomalies are fairly rare.
“It is important to note that Raymond James is not forcing wealth managers to convert. We are following a conversion schedule, fund company by fund company. Wealth managers are given the opportunity to convert and when it is in their client’s interest, which it generally is, they do so. Approximately 82 per cent of our holdings are already in non-trail paying instruments.”
