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Rules for platform pricing and trail commission

This article is part of
Guide to Platform Re-pricing

Since the introduction of the Retail Distribution Review in January 2013 platform pricing has had to be transparent, with each charging element clearly disclosed and the platform fee, any wrapper charges and fund costs made explicit.

Platforms have not been allowed to charge via rebates (also known as kick-backs) from bundled client investment charges on new business since the RDR first came into force.

From April 2014 platforms can only be paid for platform-related services in the form of product or platform charges, paid for by the customer. This means they will no longer be able to receive rebates from fund managers.

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Fund rebates, passed back to the customer in the form of additional units, will continue to be permitted, although on unwrapped investments these will be subject to taxation. Cash rebates of more than £1 a month will also be allowed.

Rebates to platforms on legacy business must cease after 5 April 2016. Although rebates from fund managers to clients can continue indefinitely, as rebates are often packaged together it is likely these, too, will stop, meaning trail commission on legacy platform assets will also come to and end.

Terry Huddart, technical communications manager at Nucleus, says while platforms must move all existing business to an explicit charging basis by April 2016, in the meantime, they must move customers to explicit charging any time there is a disturbance event, such as a fund switch or other advised event.

In practice, most believe this would mean few clients would still be left in legacy asset by April 2016 irrespective of the FCA’s sunset clause cut off.

Michael Barrett, platform marketing manager at Skandia, says some platforms have taken the decision to automatically transfer all clients to the new RDR compliant ‘unbundled’ fund share classes, others have chosen to hold off ‘bulk converting’, instead letting advisers choose when this should take place on an individual client basis.

FCA guidance published after some platforms had already begun the process of bulk converting states that while platforms can transfer clients en masse, they must offer a time-limited opt-out at a minimum and must not do so where costs would increase.

Analysis conducted by FTAdviser last year found that rates on some fund clean share classes yields a significantly larger margin for fund groups than was taken under the previous bundled model, meaning total cost of investing taking into account platform charging and adviser fees would be higher.

Stephen Wynne Jones, head of marketing at Cofunds, says many advisers have a real concern about migrating their clients to adviser/platform charging and how to manage the move to clean share classes. He says that was why several platforms chose not to demand a mass transfer to clean funds.

Among those not bulk switching are Cofunds, FundsNetwork, Axa Elevate and Nucleus. Platforms that are or have completed bulk switches include Standard Life (completed December 2013), Ascentric, Alliance Trust Savings and Novia.