FundsNetwork's Paul Richards queries the fate of smaller portfolios.
More than six months have come and gone since RDR and, though this momentous regulatory change has cemented many things, there are still some elements that remain unclear.
Perhaps most notably of these is the impact measures outlined in the FCA’s final rules for platforms will have on the industry – in particular, how the ban on platform rebates will play out and what effect this will have on legacy trail commission.
While it may be clear that there is no outright ban on legacy commission already in place, we have seen some providers make some rather arbitrary decisions to switch off legacy commission where the client is perceived to be dormant.
Comment: Life after the platform paper
In some cases, I suspect, this has even been done when there is no obvious benefit to the client.
What the regulator has made abundantly clear is that it expects clean share classes to become the norm for both new and existing assets. Clearly this has significant implications for adviser remuneration, and I expect platforms will work closely with advisers to ensure that as many clients as possible are moved into clean share classes and agreed fee structures by the time the so-called sunset clause takes effect in 2016.
Mind the gap
It is natural to prioritise the migration of those clients with larger portfolios into clean share classes and we are starting to see this in practice already.
The danger, though, lies with clients with smaller portfolios who are at risk of falling through the advice gap, particularly when the received wisdom is that smaller clients should be ushered into non-advised services.
I believe this so-called ‘wisdom’ should be challenged (though the headache that many advisers face will be how to service clients with smaller case sizes in a cost effective manner).
Fortunately, many solutions now exist which can help ensure these clients are not neglected.
These services not only support clean share classes and adviser charging but the more complete propositions in the market can offer an end to end solution that offers real choice coupled with genuine investment credibility.
More importantly, these services can typically help advisers deliver a cost effective and efficient way to provide an ongoing service to these smaller clients - though that’s not to say that these solutions shouldn’t be used for larger clients as they absolutely can and should be where it is suitable to do so.
Paul Richards is head of sales at FundsNetwork.
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