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Advice on conversions

This article is part of
Guide to the Sunset Clause

For nominees, the Financial Conduct Authority states a notification that a ‘clean’ unit class exists to which it is proposed to convert all existing clients’ holdings, explaining (where this is the case) why it is in the client’s best interests, does not constitute advice.

The actual conversion itself is also not advice, the FCA argues, as this will be an action that follows on from obtaining the client’s consent.

If the client is given such notification, the FCA states they then have the option to seek advice on the matter.

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However, unless they have a nominee arrangement, the FCA states the client must make the request to convert.

Again, the FCA points out a notification that a clean unit class exists (without a specific recommendation to convert to that class) does not constitute advice.

A recommendation to a direct unit holder to convert to the clean unit class, however, will constitute advice on investments, the FCA states.

If the client is investing in a fund as a result of the recommendation of a financial adviser and that relationship still exists, then the FCA says that adviser may have a role to play in the conversion process.

Legacy payments to platform providers will need to come to an end in April 2016 or be passed on in full to clients in the form of small cash rebates or unit rebates.

The FCA states advisers may wish to consider contacting platforms and product providers before this date to discuss the options available to clients, including the timing of conversions to clean unit classes for their clients.

Equally, the FCA says platforms and product providers should be engaging with a client’s financial adviser in good time when considering converting investors’ holdings to clean unit classes.

The City watchdog says financial advisers should have an opportunity to discuss the conversion with their client as appropriate.

In terms of whether a key investor information document needs to be handed out by the adviser, the FCA states this will not be needed upon conversion as long as:

1) The firm has taken reasonable steps to assess whether the conversion is in line with the client’s best interests rule and treating customers fairly rules.

2) In all cases, where the conversion is initiated by the fund manager, platform or other nominee, the client has been given sufficient notification of, and information on, the proposed conversion to enable them to seek advice or make an informed decision on whether to transfer their investments to another platform.

The notification should include information about whether there is likely to be an overall increase in charges for clients, as a result of the reduced AMC combined with the new platform charge (or other charges).

3) Clients are given the option to request the KIID for the clean unit class or advised how they can access the document electronically.