Platform James Hay is weighing up how to manage orphan clients as it predicts the number on its platform will increase in the coming years.
Speaking to Money Marketing, James Hay chief executive Alastair Conway says the platform has started looking into orphan clients and whether it needs to do anything for those on its platform.
He says: “We only have a few thousand orphan clients but I expect as the years go by that number will rise. Because most of our clients are quite large as a customer size, advisers don’t let them go. For platforms who have a lot of smaller clients, who might not be viable in a fee world, you might find there are a lot more.”
The FCA highlighted problems with orphan clients in its platform market study interim report, published last week. The regulator estimates there are just over 400,000 orphan clients with more than £10bn of assets on platforms.
It is concerned orphan clients have limited ability to access and change their investments on adviser platforms, which means they are paying for functions they cannot use.
It also found some platforms charge up to 0.5 per cent more on top of existing platform charges for orphan clients. The regulator estimates around 10,000 orphan clients are paying extra fees of more than £1.2m each year.
James Hay says its work on orphan clients is not as a result of the platform paper but acknowledges they do present risks for the industry.
Conway says: “Orphan clients provide a unique challenge; they haven’t always chosen to self-manage and the move to be a direct client may or may not have been their decision. They could have been completely reliant on the advice they were previously receiving.”
He says: “As such they present a significant risk for the industry and platforms need to ensure that communications, including the options available to them, and pricing for orphan clients are clear and concise.”
Conway says James Hay does not charge orphan clients more but can see why some platforms might because of additional work the platform may have do without an adviser filling in the gaps.
He says: “It is not unreasonable for a platform to say, if I am doing more for a customer, I need to look at the charging for that differently.”