The move to post-RDR share classes is still causing consternation for some platforms. Henry Brennan finds out what they need from the regulator to move forward...
The move to a cleaner future is being hampered by a lack of clarity from the regulator, leaving some platforms in danger of lagging behind.
The Financial Conduct Authority (FCA) is preparing to release its final rules for clean share class conversions as platforms have pointed to the weak spots which exist in the current guidance.
Aviva has recently said it cannot move forwards with its plans for bulk transfers of clients to clean share classes until the regulator provides greater clarity over the basis for determining detriment to the end consumer.
Platforms continue to lobby the regulator for further guidance surrounding the move to post-RDR share classes.
Aviva head of platform proposition Phil Ralli said: "We are talking to the FCA about getting clarity on what their definition of detriment should be. We think you should look at both the annual management charge and the total expense ratio to decide.
"We want the FCA to endorse that. We are trying to get that clarity but we have not yet, which is delaying us."
Others have raised concerns over an issue central to carrying out bulk conversions; namely around how to progress with non-responsive legacy clients.
The regulator issued guidance in October which suggested that, as long as the move to clean is not detrimental to a client, express consent is not necessarily required.
This 'opt out' approach, on the condition the client was given prior notification of the conversion and the option to object, represents a reasonable compromise in the minority of cases where clients could not be reached.
However, fund supermarkets in particular are holding out for further clarification on this ‘opt out' principle, even where there are no plans to perform bulk conversions.
Cofunds, for example, has lobbied for clarification on the 'opt out' approach in terms of what it means for collecting fees from non-responsive legacy clients.
Cofunds distribution director Andy Coleman says the current guidance does not recognise that, if unresponsive legacy clients are moved to clean share classes, there is no way to continue with the payment of the platform fee.
He said: "We can today transfer everybody over from bundled share classes to the new clean share class, as long as there is no detrimental effect. But we have no contract in place with the end consumer to collect any customer agreed remuneration.
"It is about how we facilitate this in its simplest terms, making sure that the ultimate outcome of a cash return is not the default. The regulator is becoming aware of some of the challenges. All of us as an industry would welcome that as a clarification."
In this specific scenario, fund supermarkets would still need the proportion of the original bundled charge that represents the platform charge to be redirected from the fund manager to the platform, independent of the client.
It is perhaps reflective of the inherent difficulties which remain with moving to post-Retail Distribution Review share classes that only two platforms have completed the move: Alliance Trust Savings and Standard Life.
Standard Life wrap head of platform proposition David Tiller says the clean share class conversions were completed last week and the wrap is confident these actions are in the consumer's best interests.
He said: "The point which seems to get lost in the debate is that the regulator is quite clear they regard clean as beneficial to clients. If there is not a very good reason for being in clean, you should be in it.
"By bulk converting, we took everybody outside of the tax regime. In terms of looking after customers' interests that is another key point."
A spokesperson for the regulator said the level of feedback on this issue had been substantive.
"We received a lot of feedback on our guidance consultation. Despite much of it coming after the deadline we felt it important to consider all the responses we received. We are now working through those and deciding on the final guidance on moving customers onto post-RDR unit classes."
This undertaking is enormous and the regulator is right to remain receptive to the industry's concerns. The regulator's final guidance is expected shortly and should help the industry to move in the right direction.
|"As a nominee is the registered holder of the actual units, the rules do permit the nominee to exercise any right to convert from one class to another, provided that doing so does not contravene any provision in the prospectus of the fund." - FCA guidance (October 2013)|
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