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Share class comparison tool launched in wake of FCA guidance

Platform due diligence provider AdviserAsset has launched a new comparison tool aimed at advisers to support decision making around clean share class transfers for clients, following Financial Conduct Authority guidance published last month.

According to Colin Turton, director of AdviserAsset, the free tool will allow advisers to analyse net fund charges, allowing for any income tax on fund rebates, on funds contained within an investment portfolio. It is expected to go live today (5 November).

Mr Turton said the tool has been developed in direct response to the Financial Conduct Authority’s recently published guidance consultation paper on changing customers to post-Retail Distribution Review.

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In it, the FCA said platforms should not convert clients to clean-fee share classes where the cost to the client will increase - and they must also offer clients an opt out before any transfer takes place.

The FCA stated: “We would expect in most cases that the clean unit class would be exactly the same as the pre-RDR class, with the only difference being the reduced annual management charge.

“However, if this is not the case, and if a client is in any way disadvantaged by such a conversion, we would not expect that conversion to take place – so we would expect the effect of the conversion on clients to be considered.”

Mr Turton said the approach could place a significant obligation on advisers to check not only if any move would create a client disadvantage, but also if not moving would create a disadvantage as the FCA has given strong indication it is in favour of clean share classes where appropriate.

Mr Turton said “It makes absolute sense for the regulator to take this stance. It’s clearly aimed at achieving a good customer outcome. But getting hold of the data relating to share class availability and the net fund charges, allowing for any income tax on fund rebates, can be a time consuming and complex process for advisers, particularly where there are many funds in a portfolio.”

HMRC is currently “reviewing” how it treats platform charges with a view to potentially introducing VAT on them.

In September AdviserAsset rolled out a similar comparison tool for advisers and paraplanners which takes into account the impact of non-pension investments on charges relating to a pension switch.

Mr Turton claimed advisers can reduce pension fees by as much as 70 per cent by taking account of economies of scale from consolidating assets held on-platform.

FTAdviser revealed last week that Standard Life will use an untaxed rebate to ensure clients on its wrap platform do not pay more for clean share classes as it begins converting all clients to clean share classes.

Skandia recently found that clean fee share classes are on average 6 basis points more expensive than their bundled counterparts, and said it would negotiate preferential rates to mitigate this.

James Hay Partnership, which had previously promised not to switch clients unless they would be paying less in the unbundled share class, claimed one in three clean funds were more expensive than their bundled versions.