Platforms are helping advisers transition to ensure they are ready for when the new trail commission rules are implemented in April 2016, with several large players readying direct communications to those clients with which advisers have less contact.
The legacy business ‘sunset clause’ will be implemented in April 2016, meaning all new and existing business will have to be charged on a platform charge basis, with only unit rebates to facilitate discounts permitted.
By this stage, most platforms are well advanced in their transition from legacy ‘bundled’ share classes paying commission, with the likes of Standard Life, Ascentric and Novia being already fully unbundled in advance of the new rules.
Speaking to FTAdviser, Cofunds’ head of marketing operations Stephen Wynne-Jones, explained that there has been a gradual migration of less active clients to the new charging regime since the deadline was imposed, with advisers often broaching the subject at annual reviews and being “challenged to prove they can offer a service worth being explicitly charged for”.
He said that platforms have to respect that relationship - “we can’t steam in and directly contact clients” - but there will come a time when they will have to be made aware, with Cofunds planning to start direct client communication in the summer.
The firm has already started work on bulk segmentation and bulk conversion tools to help advisers in the run-up to the ‘sunset clause’, writing to over 5,000 intermediaries to tell them how it will support them in the run-up to the April 2016 deadline.
A spokesperson for Old Mutual Wealth told FTAdviser that it communicated plans for the sunset clause to advisers in November last year, with a spokesman stating that any business that remains in bundled charging by December this year will automatically move to unbundled.
“Any clients that remain in bundled charging will be notified by OMW of the automatic move to our unbundled charge structure in Q4 2015.
“Advisers were involved in this process - they introduced the clients to us in the first place, so it is entirely right that we continue to work with the advisers to transition their customers to unbundled charging.”
Old Mutual’s expectation is that the number of clients remaining in bundled charging at the end of 2015 will be limited. However, those that remain in bundled platform charging will be moved to an explicit platform fee and commission will end.
“Importantly, the adviser will retain an agency relationship on our system and we will not consider the client an ‘orphan’ unless the client chooses to notify us we are no longer taking advice.”
Damian Smyth, head of intermediary business at Alliance Trust Savings, told FTAdviser that many legacy platforms are attempting to move clients into IFA-led execution-only models where service, support and marketing continues to come via the intermediary.
“The type of client that came for advice five years ago would have gone for face to face rather than consulting the internet and they did that for a reason which, probably hasn’t changed.
“At some point the big platforms will have to start resolving the issue themselves, but this may come at the risk of undercutting the advisory market, which remains important to the providers, many of which have them to thank for the introductions in the first place.”
Parmenion told FTAdviser the sunset clause will have a severe impact on many firms, pointing out that a typical advisory business will see between 10-20 per cent of its revenues as trail, arising from products sold over the last 25 years.
“As service levels for many of these customers will be low, the profit level impact of the withdrawal of trail will be disproportionately greater. There will be little immediate cost reduction to offset the lost income.
“We can see unmodernised firms becoming unprofitable or cash flow negative as a result. We don’t see this as high on advisers agenda but now is the time to act.”
peter.walker@ft.com
