Advisers are often not receiving their fees for advice provided for on-platform investments because they fail to define where funds will come from when clients’ cash accounts do not have sufficient funds, one major platform has told FTAdviser.
Verona Smith, director of marketing at Cofunds, warned that although advisers understand they have to set up a fee model for their post-Retail Distribution Review charges, many have missed the requirement to define where funds come from if the cash account runs low.
In an interview with FTAdviser, Ms Smith said advisers have the choice of asking their payments to be taken from the largest fund, a nominal fund and the available cash account.
A large proportion of advisers choose to use the cash account to cover fees - and this is also the default option if the adviser does not define a fund for the fee to be taken from. However, the adviser must define the ‘sell-down’ mandate when the cash account is being used.
A sell-down mandate identifies the funds that the client and the advisers are happy to sell units from to top up the cash account in order to pay the adviser charge.
As many advisers do not recognise the need to do this or otherwise fail to define which funds to use, especially if the cash account is being used by default, the platform is “often” called as advisers “haven’t been paid”, Ms Smith said.
She said: “They have to tell us where it can be taken from as we can’t do it randomly. If they do not tell us where to take it from we will take it from the cash account, but if they don’t have the funds there then advisers will not be paid.
“We will often get a call from advisers as they haven’t been paid. We won’t pick if there is no sell-down mandate.”
Ms Smith said the issue reflected advisers’ difficulty adjusting to the complexity of the RDR regime, saying that pre-2013 intermediaries did not have to think about the funding of the fee as it was built into the fund cost.
She continued: “It’s not just about setting the fee model up, it is about managing the cash. There has not been as much industry discussion around this. Everyone has been talking about setting the fee model up so advisers have realised to switch to it but how are their fees going to be funded?
“Do you want to sell down out of your unwrapped portfolio or your Isa so they can select where the most tax efficient wrapper to take the fee from?
“Some advisers may just use the cash account by saying this much will go into the cash account and it needs to be topped up for that monthly fee. We have encouraged advisers to keep the cash account topped up to enable payments.”