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Adam Smith: Advisers need to act now on legacy platform assets

With some advisers receiving up to 20 per cent of income as trail from inactive clients, action needs to be taken to re-engage and establish a mutually beneficial relationship.


Following last year’s publication of the the FCA’s position on platform remuneration post-RDR, financial advisers should by now be aware of, and preparing for, two important deadlines.

Sunset Clause

First up, from 6 April 2014, for new and disturbed business, whether advised or self-direct, platforms will have to be paid by a platform charge disclosed to and paid directly by the end-investor, rather than by annual management charge rebate on the funds that an investor chooses to buy. Secondly, from 6 April 2016, this new form of charging applies to all legacy business. This is the so-called sunset clause.

Other PS13/1-related changes include restricting when an investor can receive cash rebates. Rebates will mainly be received in the form of units and will be subject to tax when outside a wrapper. These rules apply to both advised and self-directed platform business.

These and other RDR-related changes basically mean that charging on all of an adviser’s business – new, disturbed, advised, self-direct and legacy – needs to be unbundled from 6 April 2016. This means that both the adviser and platform will be paid directly by the investor, rather than from the fund manager. This also effectively means that adviser firms will need to have migrated all their business to clean share classes by the April 2016 deadline.

Managing inactive clients

For advisers with active clients these changes can be handled relatively easily by working closely with their chosen platform. But problems may arise with clients who are inactive or merely transactional, given that advisers will need to demonstrate an ongoing advisory service if they wish to charge an ongoing advisory fee. Advisers therefore need to re-engage with these investors – either to move them into an advisory relationship, or a lower-cost self-directed segment.

It’s a big challenge – in fact, you can see the scale of the challenge by looking at the number of advised clients on the Cofunds platform who have been inactive for three years or more. They amount to an average of 30 per cent of the total. This is equal to 20 per cent of client revenue from trail commission.

But even though these investors are inactive, they are still to some extent in a relationship with an adviser, and this relationship has to be nurtured.

Advisers may therefore want to classify their different degrees of client engagement and design a strategy to strengthen this engagement. Investors could be classified from say, A to D.

Switched-on advisers will already have been communicating with their clients and educating them on how the move to explicit pricing affects them. They should be able to expect their platform provider to beready and willing to assist them in this process ofre-engagement with different categories of client now.

The end of the trail is very near – so act now

Adam Smith is commercial director at Cofunds

How advisers could classify their clients

A. Clients with whom the adviser already has a strong relationship and who are already being migrated to the new charging reality.

B. Clients with quite a strong relationship with their adviser, who need to be kept informed and educated about the changes in order to strengthen the relationship. Relevant information should be flowing from the adviser.

C. Clients are typically those who helped an advisory firm build their business in the first place. But they may no longer be profitable to service. The challenge is to build an alternative service model that is affordable to the client.

D. Clients who have bought something from the adviser at some point in the past but with whom there is no longer a relationship. The adviser needs to formulate a cost-effective contact strategy and process for managing their servicing needs under the new regime.


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