Two platforms have stated advisers and their clients still have options to get round a decision not to allow conversion of ‘superclean’ share classes to a platform-friendly share class for re-registration.
Asset re-registration requires a stock transfer from one platform nominee name to the other, and, as no stock is bought or sold, it is simply a change of ownership.
However, issues arise if the receiving platform does not have access to the ceding platform’s superclean share class.
An expert, who wished to remain anonymous, questioned why Axa Wealth and Fidelity cannot convert ‘superclean’ to a platform-friendly share for clients who wish to switch platforms.
He pointed out that rivals were able to facilitate this.
“Standard Life has a number of super-clean, so does Cofunds and in those cases they have signed agreements with the fund manager and they will convert to a platform-friendly share class.”
The expert told FTAdviser that, as a consequence of Axa Wealth and Fidelity’s stance, clients could be “out of the market” and they may be subject to capital gains tax.
“CGT calculations would be a lot more complex, so the client would be likely to pay more fees and the adviser would have to go back to the client and get an agreement that they were going to carry out a switch so there is a lot of time and costs.
“Alternatively, they could do a cash transfer, but it defeats the point.”
Both Axa Wealth and Fidelity said there were options for clients in superclean share classes who want to switch platforms.
Steve Owen, head of platform proposition at Axa Wealth, told FTAdviser that as a result, few platforms have been able to do it successfully without encountering problems and there is no industry-wide solution.
“An adviser looking to re-register away from Elevate to a platform that does not offer a superclean priced fund can switch out of the superclean and into the clean before triggering re-registration.
“Switching funds is often faster and simpler than a share class conversion and, because we offer pre-funding, there is minimal delay in the switch process.”
A spokesperson for Fidelity said that where they offer a superclean share class on the platform that is not eligible to re-register - i.e. there is no equivalent fund to re-register into - the adviser has a choice.
“They can either switch their client for free into an equivalent clean share class and then re-register it to another platform, or simply transfer out in cash.
“We do not offer ad-hoc conversions, as there is no means of completing this scalably and reliably within the industry at the moment. To attempt to do so would slow down proceedings in a way that could also prove frustrating to the adviser and end-client.”
A spokesperson for Old Mutual told FTAdviser that the problem requires an “automated industry solution” that enables share classes to be converted in flight between different platforms.
“Tisa has achieved this for re-registration and this could be extended to share class conversions and we intend to talk to Tisa about that.
“Although we do not offer a conversion process on an individual basis, we have been exploring the possibility of making the standard retail share class available where clients have converted to the preferential share class.
“This will allow clients to switch into the standard share class and complete the re-registration process without creating a CGT event. We hope to make this more widely available in the near future.”
Both Standard Life and Cofunds confirmed to FTAdviser they can convert from superclean to clean funds to facilitate re-registration out.
David Tiller, head of adviser propositions and strategy at Standard Life, added that placing barriers to exit “is not in the client’s interest”.
He commented that it is difficult to understand why other platforms would not take the same approach as it is clearly the right thing for the customer. “We can only assume that any platform not helping to support the free movement of assets in this way must be constrained by their operational capability.
“Alternatively, they may simply be unwilling to bear the additional cost of supporting this process in terms of administration, operational risks and the need to maintain multiple share classes of the same fund.”
A spokesperson for Cofunds, agreed, adding that if a client holds a ‘superclean’ share class and wishes to re-register off to a platform that does not facilitate the same share class, they will convert it into the fund that’s technically not open to new business anymore.
“This is a practice we’ve agreed with the fund groups and following guidance from the trade body Tisa. It avoids the need for encashment, time out of the market and possible tax liabilities and we agree with you that it’s in the client’s best interests.
“I imagine other platforms don’t have the scale to obtain the discounted price from the fund group, and/or want the overhead of setting-up and maintaining funds not open to new business. We therefore believe this should be on every advisers due diligence check list when considering re-registration to another platform.”
donia.o’loughlin@ft.com
