InvestmentsJun 17 2019

Platform giants warn of unintended consequences of FCA rules

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Platform giants warn of unintended consequences of FCA rules

The regulator stated in its interim platform market study in March it was keen for advisers to switch platforms if it is in the client's best interest.

In particular it wants the platform that the client is transferring away from to create a new share class to match the share classes available on the platform that is receiving the client's assets.

The regulator had opened a consultation on this topic, which closed on 14 June. The final report will be published later this year. 

The problem the rule is intended to solve is that of clients having to sell all of their assets on the platform they are exiting, before buying them back again once ensconced on the new platform.

This costs money and also means the client is not invested in the market for a period of time, and so could be missing out on investment returns.

But several big platforms have responded to the consultation, warning the regulator of the unintended consequences of such a rule.

Steven Cameron, pensions director at Aegon, said: "Requiring the ceding platform ahead of transferring to arrange conversion into a share class available on the new platform could result in thousands of extra share classes having to be added, creating significant initial and ongoing costs and potential delays.

"While it’s only right that platforms don’t put barriers in front of customers leaving, the proposed approach places too much onus on the ceding platform."

Instead Mr Cameron believes the platforms should work together to come up with a better solution to solve the problem.

Mr Cameron said: "We are urging the FCA to work with the platform industry and fund managers on a radical new solution under which fund managers would undertake the share class conversion as part of the re-registration of the client’s assets between platforms.

"This alternative approach could lead to a more streamlined, cost-effective, customer friendly and forward looking solution."

He added: "While we agree in specie transfers should be offered to all customers, the benefits over cash transfers are less for pensions or Isas as here encashing the underlying assets does not create a capital gains tax liability."

Steven Levin, chief executive of Old Mutual Wealth, the platform owned by Quilter, said the proposals were flawed because platforms would be required to hold "thousands of new share classes, increasing the risk of customers inadvertently selecting an unintended share class and/or not the cheapest available".

He added: "There may be an additional cost for platforms holding thousands of new share classes, which may be passed on to customers in higher platform fees.

"Increased operational complexity for platforms holding additional share classes potentially increases the likelihood of error."

But Mr Levin agreed that there is an issue with clients being out of the market.

He said: "Switching platforms should be simple, straightforward and efficient for customers and the whole industry has a responsibility to deliver that.

"Quilter is supporting the FCA’s aim to make moving platforms simpler for customers.

"This includes our support for the proposals to end exit fees, incorporating ‘comparable services’ providers within these rules and requiring receiving platforms to give customers the option to convert into discounted share classes where available."

Mr Levin is also calling on the industry to implement the "best possible in specie conversion process".

He said: "In order to do so we need to agree, as an industry, how it is most appropriate to execute the conversions.

"Enhancements to existing technology used across the industry will be required, but we believe that making fund managers responsible for undertaking the conversion is most likely to produce a good outcome for the customer.

"We ask the industry to come together, with the support of the FCA, to explore this option in detail."

Andy Bell, founder and chief executive of the AJ Bell platform, said different share classes of the same fund acted as a "significant barrier to transfers" because not all platforms can hold all share classes.  

He said: "The solution here is to reintroduce cash rebates, on the basis that these must all be paid to the customer’s account and cannot be retained by the platform.

"This would enable there to be a single retail share class for each fund with platforms able to negotiate discounts for their customers in the form of cash rebates that are paid into the customer cash account on the platform.

"I believe that any fears that these cash rebates will be used to confuse platform pricing are unfounded and a single share class per fund would enable easy transfers between platforms."

The Financial Conduct Authority has declined to comment. 

david.thorpe@ft.com