Adviser charging rift in platform sector

A rift opened in the platform sector last week as groups were split on how to manage the move towards adviser charging.

Four platforms – including Cofunds, Skandia, FundsNetwork and Axa Elevate – have now stated they will keep paying trail and rebates from investments made before December 31 2012.

In contrast Ascentric, Novia, Alliance Trust Savings and Standard Life have all begun converting share classes in bulk with a view to moving their entire suite of funds on to clean fee share classes within the next few months. This would have the effect of cutting off trail commission, potentially posing problems to those advisers still managing the transition to adviser charging.

Nucleus chief executive David Ferguson last week stated that his platform would first research charges on both bundled and unbundled shares of each fund to ensure investors will not lose out when they are converted.

A fund’s total expense ratio is likely to fall slightly as the fund gets larger due to economies of scale reducing the impact of operating expenses on the fund’s investors. This means that newly-launched clean fee share classes may start out more expensive than the equivalent bundled share class as they have less money invested.

“It’s easy to compare the ‘dirty’ annual management charge [AMC] minus the rebate against the clean AMC, and form some kind of view, but the meaty issue lies in the additional fund expenses,” Mr Ferguson said.

“Where the client is demonstrably no worse off, then it is perfectly reasonable to continue [with bulk conversion].”

Skandia managing director Peter Mann said: “We anticipate that a very small percentage of our Isa and collective investment account business will be left in our charging structure by 2016. That date is more than two years away and it has never been our intention to expedite the movement of that book to an unbundled model before advisers are ready to do so.”

His stance was echoed in statements from FundsNetwork and Cofunds, while David Thompson, managing director of Axa Elevate, said the FCA’s statement earlier this month allowing cash rebates to continue from legacy business meant there was no regulatory requirement to switch off such payments.

“The decision to force conversion appears at odds with the clarification from the regulator that the rebate to clients on legacy assets can continue and it is unclear where the authority for platforms to force this move comes from,” Mr Thompson said.

Novia chief executive Bill Vasilieff said: “By taking a clear stance on this issue it is our view that we will avoid confusion between advisers and their clients and will demonstrate our absolute commitment to providing a clear, transparent and unbundled pricing structure.”

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