Most advisers to be wholly fee-based before sunset clause

In spite of concern over the effect on advisers of the effective end of much legacy trail commission when the platform rebate sunset clause comes into force in April 2016, figures coming to light from operators suggest the problem may be far less prevalent than suggested.

A recent survey by Investec found that some 80 per cent of intermediaries believe that some advisers will struggle to fully complete the transition from commission to fee-based remuneration before the ‘sunset clause’ deadline.

This follows the FCA’s PS13/1 statement which was published in April 2013 and meant platforms must ensure all payments between fund managers and platforms is ceased for new business from 6 April 2014. A sunset clause allowed operators a further two years to phase out legacy rebates.

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Research published earlier this month by Altus revealed that some platform operators are only now beginning to confront the challenges and tax liability issues for customers attached to the withdrawal of trail commission.

Most platforms, however, point to a well advanced transition away from legacy ‘bundled’ share classes paying commission. In some cases, such as Standard Life, Ascentric and Novia, bulk conversions will mean they are all fully unbundled well in advance of the new rules.

Old Mutual provided figures to FTAdviser showing 74 per cent of its book overall is now fee-based, with 57 per cent of advisers fully unbundled and only 26 per cent fully bundled. Some 77 per cent of its Isa and collective investment account book has moved from commission.

Speaking to FTAdviser, Michael Barrett, investment platform expert at Old Mutual Wealth, said the 77 per cent is a combination of business that the firm has written since RDR and the existing pre-RDR book moved from a commission to a fee environment.

Mr Barrett said: “This reflects a strong movement by advisers away from commission to fees, but also demonstrates how our platform allows advisers to continue to receive commission on undisturbed pension and bond assets, in line with the... legacy commission rules.

“With regards to sunset clause, our Isa and CIA products need to be in a fee environment by the sunset date. Seventy seven per cent of this book has already moved to fees, so for these advisers there will be no impact when the sunset clause date arrives.

“We expect the vast majority of our remaining book to have moved to fees before this date.”

Cofunds would not tell FTAdviser what percentage of their business has been migrated, however a Cofunds spokesperson said: “We’re comfortable with the rate of migration on the platform and our aim is to support clients as the industry moves to an adviser charge/service charge.”

“Our view is that platform trail sunset and moving investors to clean share classes is a significant challenge for the whole industry that needs to be very carefully handled. We’re working closely with our clients to support them from legacy commission to a fee-based structure before the sunset clause deadline.

“More than 3,500 advisers already use Cofunds to administer their fee models, so are already well placed for 2016.”