Last week saw the three largest platform providers formally state that they will not be switching off trail commission before the April 2016 deadline that has effectively been put in place by the regulator.
While commission will not technically be banned in 2016, bundled platform payments will. That will most likely usher in the extinction of the traditional fund share classes that collect commission for advisers.
The announcements come in spite of other platforms – Ascentric, Alliance Trust Savings, Novia and Standard Life – having already begun informing investors that “bulk conversions” from bundled to unbundled or “clean fee’’ shares will take place in the coming months.
Behold the flurry of disagreeing peers. Axa Elevate’s managing director David Thompson was one of the first to criticise bulk conversions, suggesting the difference in cost between the bundled and unbundled share classes could disadvantage some clients.
Skandia’s platform marketing specialist Mike Barrett went a step further, suggesting that it is “strange” for platforms to make the decision to convert clients in bulk without offering an alternative option for advisers or clients.
Cofunds and FundsNetwork have subsequently jumped on to this bandwagon.
The counter-argument is that converting clients in bulk is a much simpler process, will provide cost clarity for end investors and will result in a swift move to unit rebates.
So what does the regulator say?
Aside from firmly placing an April 2016 deadline on platforms to cut off their bundled payments, the rest is rather murky. When it comes to converting clients, it said that platforms, as the legal owners of fund units, can convert them in bulk and do not need to obtain consent from end clients.
However, the regulator added that the move must be made in investors’ best interests. Hardly the clarity necessary to ensure that the FCA’s “treating customers fairly’” principles are honoured in both letter and spirit, I would say.
What is striking – as it has been on many controversial issues affecting platforms – is that platform spokespeople are all too ready to provide their opinion on the rights and wrongs, but in this case only one has actually pledged to go “above and beyond” to actually help advisers.
David Ferguson and Nucleus have, quite rightly, gone away and started to crunch the numbers that will ultimately demonstrate whether bulk conversion is more beneficial to the end client.
But while we wait with bated breath for the outcome of Nucleus’s legwork, advisers should be taking the initiative – if they haven’t already – to make that change to unbundled share classes themselves.
Relying on the squabbling platforms at this stage could very possibly end in tears.
Jenny Lowe is features editor at Investment Adviser.
Editor John Kenchington is away