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Advisers warned of action on legacy assets migration

Up to 4,000 advisers are at risk of investigation by the FCA if they fail to keep the costs of legacy asset migration under check, Bryan Beeston has warned.

The chief executive of Legacy Asset Systems warned that a “sizeable number” of advisers could be flouting the regulator’s guidance on keeping down a reduction in yield for clients when transferring from old to new platforms.

In a survey of 114 advisory firms carried out by the asset migration service provider, 12 per cent of respondents said a reduction in yield of more than 1 per cent was acceptable.

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But Mr Beeston said this was out of step with best practice examples provided by the FSA in its 26-page finalised guidance, Assessing Suitability for Replacement Business, published in July 2012.

He said while the range of funds and ability to rebalance portfolios was “very important”, there had to be a cut-off point when advisers assessed the overall costs. He added: “Otherwise there is a real danger that they are breaching FCA rules and could face an Arrow visit.”

Mr Beeston warned that this could trigger a wave of skilled person reviews across the industry to ascertain whether transfer costs have caused consumer detriment.

He added: “If the FCA suspects that advisory firms do not have a sufficiently strong process to avoid failings, it could appoint third-party firms to undertake a section 166 report and that could be time-consuming and expensive for advisers. Moving any existing clients to a new solution will always be contentious because all sorts of costs can be incurred.

“A firm needs good governance and oversight for transfers and advisers should have a process that recognises there is a point where the plan could simply become too expensive for the client to enjoy the benefit of that investment.”

Jonathan Hill, financial adviser for Somerset-based Milford & Dormer Solicitors, said: “Advisers should not be putting up costs without providing any real extra benefit. The FCA makes a big deal of saying it is not a cost regulator, but then again we have got the treating customers fairly principle which should concern fair value as much as anything.”

At the time of going to press the FCA was unable to respond to requests for comment.