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FCA publishes final rules on moving to clean share classes

The FCA says platform clients must be made aware of possible cost increases resulting from being moved to clean shares.

The regulator has today published final guidance on converting platform clients to clean share classes. Changes to regulations have prompted some platforms move to clean share classes already.

In October the regulator released a guidance consultation explaining it did not expect platforms to convert clients to clean share classes if there was client detriement. It prompted some questions from platforms about how they should assess client detriment, and some were frustrated at delays publishing the final rules. 

The regulator now acknowledges moving to clean may mean “some clients may be better off and some worse off.”

It says: “To mitigate the risk that some clients may be worse off, firms should ensure in all cases that clients have sufficient notification of and information on the proposed conversion to enable them to seek advice or make an informed decision on whether to transfer their investments to another platform.”

Firms including Standard Life, Novia and Alliance Trust Savings have already bulk-converted clients to clean share classes.

Money Marketing  reported in November that costs for some clean share classes are more expensive than the bundled share class. 

Lang Cat senior consultant Samantha Lynn says: “This final guidance is helpful in expanding on the FCA’s views in a couple of areas, especially around customer communication where funds are held via nominee arrangements. It’s just a shame it has taken until now to publish it given that several platforms have already completed bulk conversions for all their customers.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. I may reveal myself as a prize plonker, but nevertheless:

    Clean share classes are as a direct result of the RDR and the Regulators constant push for transparency and lower costs.

    It has largely been assumed that clean share classes are cheaper than others.

    If this is not the case, then pray tell what was all the fuss about in the first place?

    I recall complaining bitterly in the early days of the announcements of the new rules – back before 2010. I was particularly miffed about the fact that as a result of RDR my investment bond buying clients would automatically be worse off. I have charged fees for years. On large bonds the enhanced allocation rate on a nil commission contract could often be as much as 5%. If I charged (say) 3% then the client was quids in. He ended up with £105 invested for every £100 and my bill was £3. A win win all round. The Regulator well and truly spoilt that party.

    Now we hear that they are not all that happy with clean share classes. For those who read highbrow stuff like Winnie the Poo it seems our Regulator is as hard to please as Eeyore

  2. Take The High Road 6th May 2014 at 5:36 pm

    Okay, so I’m just trying to work my way around this with 3 different examples:
    Client A presently holds the dirty/bundled units of JPM US Smaller Companies which presently has a TER of 1.68%, including a 0.5% trail to us. Under the new ‘clean’ share class, the TER is identical @1.68%(again, assuming a 0.5% pa on-going adviser charge). So far, so good!!
    Client B however presently holds the dirty/bundled units of the Henderson Global Growth fund which presently has a TER of 2.42% pa including 0.5% trail to us but under conversion to the new ‘clean’ share class, the total fund cost drops to 1.62% pa (including an on-going adviser charge of 0.5%). Admittedly, I think I might need to re-check this as the difference seems quite staggering!
    Client C presently holds the dirty/bundled units of the Legal & General UK Alpha fund which presently has a TER of 1.68% pa including 0.5% trail to us but under conversion to the new ‘clean’ share class, the total fund cost drops to 1.54% pa (including an on-going adviser charge of 0.5%). So again, back to an improvement again!
    Client D presently holds the dirty/bundled units of the Standard Life UK Smaller Companies which presently has a TER of 1.69% however, upon conversion to ‘clean’ shares the total fund cost rises to 1.74%(including 0.5% pa on-going adviser charge); so again back to being more expensive!!
    In all 3 cases above, I have used a flat platform charge of 0.25% for the clean share class which I guess is a decent enough average out there presently.
    The bottom line appears to be IF the regulator wants us to adhere to the letter of what they have set out then every line/investment that a client holds will then need to be looked at separately.
    …..as usual, the client is stuck in the middle of all this and we as advisers have the time consuming task explaining the past, the present and the future and exactly what overall benefit there is to him/her in all of this….!!

  3. The clean share class versions appear to also outperform the bundled versions so its not only the TER’s applied that need to be considered (certainly true about bundled and unbundled versions on the Skandia platform)

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