There are now concerted efforts being made by most of the key players to put in place the necessary arrangements to enable the market to cope with big volumes of such transactions.
If there were any doubt over the need for such processes, the FSA has effectively put an end to it with its statement under section 7.7 of discussion paper 7/02 when it says: “Platform providers should consider whether they are acting in the interests of customers, according to our principles, when limiting the ability of assets to be transferred.”
In these days of principlebased regulation, this must be taken as a very heavy steer and, given a small number of fund groups that will not countenance re-registration at all, I do not believe this question should be limited solely to platforms.
I would not want to be the person at a fund company that had to defend its refusal to allow re-registration to the FSA in the context of treating customers fairly.
One of the most significant developments to enable change is the Treasury’s willingness to allow paperless settlements in the fund management industry. The response period recently ended for its document, Consultation on Better Regulation for the Asset Management Sector.
One of the main benefits of the proposals will be to allow paperless settlements for Oeics and unit trusts, removing the previous condition that any electronic notification needed to be confirmed in writing by the investor.
The present timeline suggests that the necessary changes will be laid before Parliament in the autumn session and should take effect from the end of the year. This will remove the need to have paper stock transfer forms which so frequently delay the re-registration process.
Before these changes, I believe it is essential that, as an industry, we need to make sure all the other parts of the process are in place for the widespread adoption of electronic re-registration service.
In the meantime, we have to have a more realistic expectation of the difficulties with the current process and of how long, under current conditions, it is realistic to expect re-registrations to take.
There has been much discussion in the market of late, with strong suggestions from some quarters that some platforms are putting barriers in place as a way of defending against fund outflows.
Having spent a great deal of time studying this issue, I have reached the conclusion that those making such statements have not studied the practical barriers that exist.
Over the last six months, the Adviser Forum wrap group, which counts among its members adviser firms representing nearly 25,000 IFAs, has been working with leading wrap providers as well as other trade groups such as Aifa, Ima and Tisa to address issues that are the cause of current lengthy delays which are invariably part of re-registering client assets today.
Based on information supplied to us by a number of leading platforms, the time taken for a typical re-registration involving seven fund holdings is between six and 10 weeks for individual to platform re-registration.
In the case of platform to platform transfers, this can extend to around 20 weeks, or even 26 weeks if any funds go ex-dividend during the process.
Some of the causes of delays appear almost farcical, for example, cases are frequently delayed because there are minor inconsistencies between the information supplied by the adviser and that on the fund manager’s record. These can be as simple as the fund manager having a different title for the client, say, Dr instead of Mr, or the fund manager has an old address for the client. I am aware of one adviser that has many hundreds of cases that have been delayed because of such inconsistencies.
Where ex-dividend cases are involved, the process of reconciling dividends with the main transfer can be a major headache. When, as an industry, we are able to adopt paperless re-registration because the transfer will then be instant, such problems should become avoidable.
In the meantime, I believe it is essential to set realistic expectations for clients. Another frequent problem arises when the fund firm does not provide the receiv-ing platform with adequate information to identify who the units being transferred relate to. If the application is for a Pep or Isa fund, details may only be identified at the application stage for unwrapped holdings.
I appreciate that some of these issues may seem incredible but they are examples of delays that are occurring every day in processing re-registration. We cannot just wave a magic wand and make them go away. All parties need to work cohesively to deliver a more efficient environment.
Although, in the long term, moving clients to a platform may enable significant improvements to the service, the initial experience will probably be lengthy and appear cumbersome. Because all the different fund groups carry out changes at a different pace, the client is likely to be inundated with initial documentation as each holding is moved to the platform.
In order that the whole market can benefit from the improvements to processes that will be available in the new year, fund management groups need to be preparing to adopt these changes now.
As identified in Money Marketing last month, IFDS will be able to support these changes for fund managers next year, and other third party administrators no doubt have similar facilities in hand but fund managers need to make it clear they will support these services and provide a clear commitment as to when.
The third-party administrators can, however, only put the mechanisms in place, the fund management groups need to adopt them.
This makes it important that adviser firms, when selecting any preferred fund managers for panel selection or similar processes, should be given a clear under-standing of when the individual fund manager expects, subject to no delays with the legislation, to adopt such revised processes themselves.
If a fund firm is not going to make such process changes fairly quickly, the adviser may, in a world approaching factory gate pricing, want to agree higher fees from the client for dealing with that particular fund manager.
By comparison, the US experience is that all re-registrations take place in seven to nine days based on agreed industry rules to which all market participants adhere, not least because there are financial penalties.
With the FSA having flagged the importance of customers’ ability to move assets under their TCF regime, they have delivered impetus for the market to improve the practical experience of re-registration.
I am sure advisers will want to monitor the extent to which fund firms and platforms are delivering on this so advisers can be comfortable about their ability to meet their own TCF obligations.