Cutting trail ‘will destroy adviser businesses’

PanaceaAdviser chief executive Derek Bradley has warned platforms seeking to convert investors to clean fee share classes that they could wipe out “a huge chunk of value” from adviser businesses.

Several platforms are in the process of converting funds from bundled share classes to unbundled, which would remove trail commission payments to advisers and any kickbacks to platforms or clients. This is in spite of the FCA clarifying earlier this month that such payments are able to continue from pre-RDR investments until April 2016.

“The origin of the trail payments was the fund provider and not the platform,” Mr Bradley said. “It’s a very difficult one and morally I think those firms that are not turning trail off would be doing the right thing.

“The underlying value of most businesses is based on trail, and if that is turned off then a huge chunk of that value is completely removed in spite of it being built up over years of being in business.

“For those firms in the past three years which have been buying other adviser businesses and determining the value based on trail, all of a sudden the thing they have built their business on is not there. It is not something they are not entitled to, it is part and parcel of an ongoing agreement.

“It would be like having the legs taken from underneath you and to me it seems a little bit unfair.”

Mr Bradley said it was right for other platforms - including Skandia, Cofunds, FundsNetwork and Axa Elevate - to question whether bulk conversions were of any benefit to end investors, as advised by the FCA. Nucleus has gone a step further and promised to investigate individual funds to determine whether the bundled or unbundled version is a better option.

Mr Bradley has previously warned of the dangers to adviser businesses valued on future trail commission payments when the previous regulator, the FSA, was consulting on how investments opened before the RDR would be affected by the ban on commission.