How and when a client moves to unbundled or ‘clean’ share classes requires careful consideration. As a business that believes strongly in the value of financial advice, we are sceptical of strategies that impose changes on clients where there is a risk the change may be to the detriment of the client.
With that in mind we are not convinced that it is right to impose bulk conversion of clients’ holdings from a bundled to unbundled share class, as it cannot be guaranteed that it would be in the best interests of all clients.
The recent FCA guidance on the matter is helpful in this regard, stating that “a conversion should take place only if it is fair and in the client’s best interests”.
In complying with the regulatory requirements for retained rebates – and it is important to reiterate that the requirements of PS13/1 fall upon platforms, not advisers – platforms should be mindful of creating an unwelcome administrative burden for advisers.
In our view, platforms should be working with advisers to provide the right level of support without creating a detrimental position for the client outside of an advice process. This does not allow for a one-size-fits-all approach of switching en masse, since each client’s individual circumstances will be different. This approach hands control to the adviser. For me, this feels right as the question of whether to bulk switch or not to bulk switch opens up some fundamental questions about the role of a platform.
We subscribe to the view that the platform’s role is to give advisers (as the people who introduced the business and who primarily own the client relationship) the time, support and a range of choices to make the right decision within the advice process.
It may also be the case that a bulk switch would force a premature end to the adviser’s trail commission. It seems unreasonable to disrupt an adviser’s remuneration strategy as a consequence of platforms taking the most convenient approach to comply with their own regulatory requirements.
While the transition to adviser charging is taking place relatively smoothly, there will be some advisers who simply have not had time to review all their clients and remain entitled to trail income until those reviews have had time to take place. A platform expediting that process could prove hugely unwelcome.
We also believe the role of the platform is to provide added-value support to advisers whenever possible. Platforms should be working with advisers to identify clients who would benefit from moving to unbundled share classes and, where the adviser has instructed, help to move them swiftly and without complication to unbundled classes.
For those clients who would potentially be detrimentally affected, platforms should help to illustrate the different charge impacts and, while it is not possible to generalise as each client’s situation will vary, there are a number of approaches that can help to achieve a better outcome.
That could include a more cost-effective platform charge as a result of client linking, or a review of investment options that offer a discount through a reduced AMC or unit rebate.
