Investments  

The sun sets on platform charging structures

Time is slipping away before providers must adapt to meet the requirements laid out by the Financial Conduct Authority (FCA).

The regulator banned all payments between fund managers and platforms on new business under the PS13/1 statement in April last year, with a sunset clause to phase out payment on legacy business leading up to the April 2016 deadline.

From that date, those using platforms will no longer be able to collect a trail commission for their services. Advisers have 17 months to transfer advised platform clients to an adviser charging structure or have their trail shut off, with clients turning into “orphan clients” – consumers who require financial advice but who are unable or unwilling to pay for it.

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Platform service providers have not been able to retain rebates on new business since

5 April 2014, and will be banned from doing so on legacy business from April 2016. A sunset clause was established to phase out these rebates on legacy business over two years leading up to the deadline. Payments between fund managers and platforms have been banned since April 2013, as have cash rebates.

However, trail commission can continue on ‘undisturbed’ collective retirement account (CRA) and collective investment bond (CIB) business beyond 6 April 2016 as they are not affected by the rules contained within the FCA’s PS13/1 guidelines.

Around 80 per cent of intermediaries believe that some advisers will find the transition from commission to fee-based charging structures before the sunset clause deadline to be difficult, according to recent research by Investec.

Key reasons behind the difficulty cited by respondents to the survey included failing to change their business model, fear of losing clients and revenue, administrative inefficiency, and advisers waiting for providers to stop trail commission entirely before making the transition.

Platform preparations

As the 2016 deadline draws near, some providers are getting an early start on the transformation to RDR-compliant charging structures.

Hamid Nawaz-Khan, chief executive of Alltrust, which specialises in the provision of actuarial, trustee and administration services for self-invested personal pensions (Sipps) and small self administered schemes (Ssas), says, “Alltrust has always operated in RDR-compliant fashion and hence, apart from minor tinkering, we have not had much to do. We view the changes as positive and believe that it will be very good for the credibility and integrity of the industry.”

In an unbundled or clean fund share class, any previously available rebate is removed from the bare fund annual management charge (AMC) and all charges must be explicitly stated. This is in contrast to a bundled fund share class, in which ongoing charges are bundled up within the AMC of the selected funds. Bundled share classes can include initial fund and switch charges, while unbundled do not.

Bulk transitions away from legacy bundled share classes well ahead of the deadline will help providers to ensure that they are unbundled well before the new rules come into full effect.