PA asked platform providers that are adopting a bulk transfer approach what proportion of funds are currently more expensive and how that will impact the conversion process.
In light of the Financial Conduct Authority's (FCA) guidance on clean share class conversions, platforms that have committed to bulk transfers have commented on the proportion of clean share classes which are currently more expensive.
The FCA stipulated that it would not expect a conversion from retail to clean to take place unless the cost to the consumer was either the same or less. There has been no shortage of claims that the move to clean share classes will, in some cases, leave consumers worse off.
Wrap and pensions provider James Hay said in October that as much as 30% of recently launched clean funds are more expensive than bundled by an average of 10bps.
How do bulk transfers break down in light of the recent FCA guidance?
Skandia followed with its own research which indicated that clean share classes are, on average, six basis points more expensive than their bundled equivalents if a discount is not applied.
Among those platforms who have committed to a bulk conversion approach are Alliance Trust Savings (ATS), Ascentric, Novia and Standard Life.
ATS managing director Patrick Mill said the proportion of share classes which would be affected was minimal and it would be taking steps to help affected consumers.
Approximately 88% of clean share classes on the ATS platform are the same price or cheaper as the retail equivalents. At most, 2% of the clean share classes stand to be more expensive than the retail.
Mill said, under these circumstances, clients would be given the choice to switch out of these investments without incurring any charge. The charges that would be waived are between £25 (online) and £80 (postal/telephone) for the dealing charges (sell and buy).
The proportion of affected share classes is roughly equivalent for the Ascentric wrap.
A spokesman for Ascentric said: "We've got around 60 funds, representing 2% of our total volume of clean funds, where the annual management charge (AMC) is likely to be more expensive. Following the recent FCA guidance, we will only convert holdings where the AMC of the lowest priced clean share class available to us is lower than or equal to the net AMC of the rebated share class.
"Where this is not the case, we will review at the end of the project in April 2014 and determine the most appropriate course of action."
Wrap platform Novia estimates that about 9% of clean share classes will be more expensive, representing a cost increase of 1bps to a portfolio.
A spokesperson said: "There is roughly 9% of the AUM on the platform where the clean share price is more expensive. That is the current situation but there is still change.
"The average extra cost is circa 8bps per annum so the average extra cost to a portfolio is under 1bp per annum. We expect this to fall as the situation becomes clearer."
In the case of Standard Life, the goal is to secure an equivalent discount on clean share classes to the cost presented by the current rebate-based model. The platform said it is on track to convert upwards of 90% of assets during the last week of November.
Rebates on funds will keep costs down but, on the wrap, will stop from the end of January 2014 and from 28 December 2013 on FundZone. Standard Life aims to have the full range of discounted share classes in place by the end of the first quarter.
The platform concedes there may be an impact to consumers during this transition period but head of UK platforms David Tiller has dismissed the impact as "negligible."
"Half the assets carrying a discount today are being converted to discounted share classes in the next two months. If the transition period for the remaining half stretched to three months, the impact spread across a clients' portfolio would be less than one hundredth of a percent (0.01%/1bps)", Tiller said in a recent communication to advisers.
In light of the FCA's guidance, funds with a higher cost to the consumer will be excluded from bulk transfers. It is encouraging to see providers like ATS in particular opt for cost-reduction measures to help consumers manage the transition.
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