Cofunds is in talks with the Financial Conduct Authority over how to tackle orphan clients ahead of the platform rebates ban on legacy business that will come into effect in April 2016.
Since 6 April, rebates between fund managers and platforms, and cash rebates, have been banned on new business. Platforms have been given until April 2016 to comply with the ban on payments on legacy business.
Speaking at the PIMS conference last week, Cofunds distribution dir-ector Andy Coleman said Cofunds has so far converted around 25 per cent of its £66bn in assets to clean. He said: “The majority of high-net-worth customers will be converted to clean through disturbance events before April 2016.
“My concern is that there are a significant number of smaller wealth accumulators that will be left with no advice and no instruction on what to do with their portfolios. And the biggest challenge for the platforms is what we do with those customers.
“Our terms and conditions suggest the last resort is to return the investment to the client and that is wholly unacceptable so a solution must be found for these clients.”
Coleman said if Cofunds was to convert all its clients to clean share classes in bulk, it would have to turn off trail commission for many clients. He said: “It would mean we would have 600,000 clients we were not charging any remuneration on and therefore all the market rate trail would be turned off for advisers because our terms and conditions do not allow us to charge the customer a fee. So we could do it but the consequences would be unpalatable for us. We are in conversations with the regulator to say ‘What do you want us to do with clients who are still sitting on our platform in April 2016 and have not been engaged with?’.”