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:
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.
Instead of coming in and saying “here is what we would expect clients to pay for clean share classes”, the regulator has simply told firms that costs to clients should be equal or lower, and let them figure out the rest.
This will foster more aggressive negotiation between platforms, providers and fund managers, and surely this can only be good for consumers. It also seems a proportionate way for a regulator to foster competition and protect consumers.
4. Opt-outs for platforms, opt-ins for others
Platform providers will have to tell clients about any upcoming switch and give them a period in which they may opt-out.
On the other hand, where a platform is not involved, the client will have to give express permission to make the switch (an opt-in, in other words).
Platforms will be relieved to hear this, but I wonder how obvious they will make the opt-out option in their client communications. Surely platforms will want to convert as many clients as possible.
5. There’s no advice necessary (but that doesn’t matter)
Finally, the regulator has specified that the act of telling clients clean share classes are available, and that they are cheaper, does not constitute advice or a “disturbance event”.
Similarly, if a client acts on this and, acting on client instruction, the adviser switches assets over to unbundled share classes, this does not count as advice.
This sounds great at first, considering the regulator tends to err on the side of advice (remember the ‘if it looks like advice and sounds like advice it is advice’ statement?).
However, it really doesn’t make much of a difference considering the disturbance event would only be significant if it meant trail commission would be switched off. Because clients will be moving to rebate-free share classes, there won’t be any trail there anyway.
So you may think the regulator is doing you a favour but really, it’s not skin off the FCA’s back.
