How clean is your share class?

Daniel Liberto

With reports on the hardships of the first phase of RDR still filtering throughout the trade press, complaints of regulatory headaches has now extended to the next step of the process: the conversion of bundled to clean share classes.

Most advisers I spoke with in recent weeks were eager to voice their dissatisfaction at how complicated the conversion process was, and were equally quick to lay the blame on platform providers. One financial adviser complained that the removal of trail commission from platform funds – otherwise known as RDR 2 – has turned into a “nightmare” because providers were “so poor” at “doing their jobs”.

Because little help was made available, this adviser said she was forced to dedicate endless days to converting from bundled and risked angering clients when the thing she convinced them to do went sour.

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This particular adviser, together with others I spoke with, called for more consistency between different providers and for fund platforms to automatically convert to clean share classes. But while the idea of bulk switching has proved popular with numerous frustrated and time-stretched advisers, others in the industry were sceptical of its benefits.

Last year the FCA warned platforms not to bulk switch if it meant costing more and many providers had since added to this caution by voicing similar fears.

The general consensus from platform providers on the topic of bulk switching was that it often worked to the detriment of the client. Whereas clean share classes were initially perceived to be cheaper than the bundled versions, it turned out that they were often more expensive, which is why many, out of fear of disgruntling the intermediary’s clients, have refrained from automatic conversion.

But while there may be a solid argument for not automatically bulk switching clients to the transparent share classes, the lack of clarity from some providers has been called into question. Advisers, who are already tasked with a great deal of time-pressing duties, were justifiably frustrated to find that some providers were still hiding costs.

One platform manager I consulted said that the biggest issue was that each provider had taken a “different interpretation” on the legislation. This meant that each had taken a different approach ahead of the 2016 deadline, which in turned has caused a massive headache for the thousands of advisers trying to make sense of it all.

With temperatures rising, misunderstandings being formed and valid arguments coming out from both sides, the regulator or someone should look to get all parties together to find a suitable solution. If this cannot be achieved the client will once again be made to pay for this latest regulatory challenge, even if the legislation was first put in place to protect them.