PlatformsMar 10 2014

Platforms prepare clients ahead of cash rebate ban

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Platforms are readying clients for the upcoming change in platform rules, which will see cash rebates banned by the FCA in favour of unit rebates.

In one of the most arduous administration projects the industry has had to face, the UK’s biggest platforms – including Skandia, Cofunds and Funds Network – have been sending thousands of letters to their client bases outlining how the cash rebate ban will affect them.

With effect from April 6, cash payments to end clients will be banned, meaning any rebates from fund charges will have to be paid in the form of fund units, with the exception of very small cash amounts.

Fund managers are also banned from making payments to platforms from April 6, previously contained in pre-RDR ‘bundled’ share classes that also included adviser trail commission. This means many end investors will have to pay an explicit platform charge for the first time on top of the explicit fee for their advisers.

Stephen Wynne-Jones, head of marketing at Cofunds, said the process had been “one of the most difficult things we’ve ever had to do” as many investors were still unsure of how they were paying for funds under pre-RDR rules. The platform has sent out a question-and-answer document to clients, having first consulted with advisers, to summarise the changes.

“It can be complicated to talk about rebates as we provide different services to different clients,” Mr Wynne-Jones said.

Skandia platform marketing specialist Mike Barrett said that on top of letters to clients, it has launched a tool for advisers to help them illustrate to clients how the charge changes affect their investments, expressed as a ‘pounds and pence’ figure.

Cofunds and Skandia have already implemented systems to allow the payment of rebates in fund units. Standard Life head of platform propositions David Tiller said it has switched to clean fee shares and will not be facilitating unit rebates.

FundsNetwork’s Jon Everill said his platform was “ahead of the game”, having already introduced its unit rebate capability and communicated the changes to clients late last year.

Platforms already operating an unbundled model are also writing to investors to explain the switch to rebates. Nucleus chief executive David Ferguson said the platform would have unit rebate capability by the end of March, but said the communication of the changes would be left to advisers as they were “too complex” to explain in a letter.

Phil Ralli, head of platform proposition at Aviva, said: “We’re writing to all clients to say we’re moving to unit rebates. The longer term aim is to move to clean fee shares.”

Both Novia and Axa Elevate have chosen not to implement unit rebates, instead moving all clients to clean fee shares.

Mark Polson: Share class conversion plans still unclear

Mark Polson, principal at Edinburgh-based consultancy firm The Lang Cat, said he believed most platforms were fully prepared for next month’s changes, but bigger challenges remained for those converting clients to unbundled, or ‘clean fee’ share classes.

“People are broadly ready – they have had a bit of time to prepare and those that didn’t want to [offer unit rebates] have been heading down the share class conversion route,” Mr Polson (pictured) said.

“I’m just not sure the guide path of getting to clean shares and working out what client detriment means is clear yet. It doesn’t feel particularly well organised at this point in time.”

The FCA has warned platforms they must be sure clients are not disadvantaged when they are converted to unbundled shares, but platforms have asked for explicit guidance as to what this means.