Opinion  

Five things I learned from FCA clean share switches paper

Michael Trudeau

We had an interesting development from the Financial Conduct Authority today (23 Otober) when it published a short-but-sweet guidance consultation on converting customers to unbundled, clean-fee share classes.

You might think it’s coming a bit late considering platform providers have been publishing their stances for quite some time already. Is it possible the platforms did not know this guidance consultation was due out? Otherwise why would they go ahead with their own policies?

Despite the paper’s brevity, there were a couple of interesting points within that you might want to keep in mind over the next few weeks:

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1. Only transfer clients where prices drop

James Hay Partnership and Nucleus must be grinning ear-to-ear. One of the main points in the guidance consultation was the “expectation” that clients not be transferred if the clean share class will cost more than the bundled version.

The two firms above have already come out saying they will check prices before converting to make sure clients get equal or better rates; James Hay said its research showed around a third of clean shares are more expensive.

I wonder if the FCA is using the word “expectation” as a sort of mild threat here, because seeing as some platforms have already begun bulk switching and some clients will end up paying more as a result, surely it’s a bit late for the FCA to be “expecting” something that clearly isn’t happening.

As an example, we did some research into total costof investing on Cofunds last year following its move and found 18 of 19 funds were more expensive for clients with less than £100,000 to invest, not least because existing clean fee share classes that predate the platform alternative yield a higher fee for the manager.

So what will the regulator do about platforms who have already converted clients to clean share classes, which also happen to be more expensive?

2. The Sipp rebate ban proposal is imminent

Remember the rebate ban paper? Remember how the FCA threatened to draw the ban across to “adjacent markets” such as self-invested personal pensions? Well, they haven’t forgotten about that.

It actually referred back to its comments about the Sipp market, reminding readers of its intention to consult on rules covering this and similar issues “at a later date where necessary”.

Today’s paper says: “Given the publically-stated intention of a number of providers and platform operators to move to clean unit classes as soon as possible, we consider it important for this guidance to be issued before any such consultation.”

It isn’t saying for certain, but I would wager the proposed Sipp rebate ban can’t be far behind this paper.

3. The FCA is willing to step back

This paper provides another example of the FCA stepping back and letting the market do its thing, where the Financial Services Authority may have been much more dictatorial.