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Karl Dines: Lifting the fog of war

In the third of a monthly series helping advisers prepare for the sunset clause, we look closer at the identification stage.  

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As a self-confessed geek and early adopter in gaming, I experience an often-used gameplay element called the fog of war. This technique is used to hide parts of the game or map. It is a dark, fog-like layer that disappears as you explore, depending on your vision range.

There is an element of mystery when you do not know where the enemy is or what lies ahead of the path. That is great in a gaming environment, especially when you are hunting aliens on a remote space station orbiting Venus.

In the financial services world, the rules around the sunset clause and how platforms may implement it are becoming clearer as the fog of war is lifted the closer we get to April 2016. We are beginning to see the path we need to take to get from one side of the map to the other. Your approach might look something like the four-stage process in the box below.

It is important in the second stage to correctly identify which assets are affected by the sunset clause. Up until now it has all been a bit hazy, with suppliers either not communicating their strategy or having a strategy that differs from others in the marketplace but things are now falling into place. It is by no means cut and dried, though, and the best possible action to take is to ask your supplier how they interpret the rules surrounding legacy assets and how they are dealing with the issue.

At the start of the year, we asked 161 firms what amount of assets will be affected by the sunset clause, in their opinion. The total amount from these firms came to £81,471,000. That figure in reality will be less, as the interpretation of what constitutes a sunset asset takes shape; however, it still illustrates the size of the issue some businesses face.

The first thing to make clear is that providers and platforms will have their own interpretation of the guidance under policy statement 13/1 and indeed may take assets into a sunset clause strategy that, in theory, fall outside of current requirements. It is wise at this stage to contact your suppliers and get chapter and verse on what assets are being considered. Some platforms have already produced guidance.

From PS13/1, the assets affected are those held on platform and pre-RDR, as well as paid for by commission rather then client fee.

This identification should not take much time and it will put you in a position to design a contact strategy plan in order to communicate your initial intentions to your clients.

The method you use is entirely up to you and may be influenced by your business set up but here are a few examples:

• Take a standard approach of contacting clients in asset value order, from the largest to the smallest.

• Order clients in merit of relationship from strongest to weakest, or reverse this process, as there may be a longer lead in time for those clients with weaker relationships.

• Take a “batch processing” approach and assign clients to advisers, giving them responsibilities but with clearly defined actions and completion dates.

A further distinction must be made, as there are instances where wrapped products such as bonds and pensions are also held on platform. Are wrapped products affected by the sunset clause? In true financial services style, the answer is of course yes… and no.

It depends on who the distributor was or if it originated from a life company or from a platform. If it is the life company, then the interpretation is that commission can continue post-sunset as it is not a platform asset. The opposite applies if the originator was the platform.

To illustrate this point, one platform provider is advising that its bond and pension are distributed by its life company and so are not affected. Another, however, is advising that its pension will be affected as it distributed by the platform itself, while a personal pension distributed through a third party life company is not.

This in itself does not mean commission will remain or stay, as each life company will take its own view on the matter and/or the FCA may bring in new restrictions to this type of policy and charging structure. It is important to check this with your suppliers on a regular basis.

We are beginning to see clearly now. As the fog surrounding sunset clause map lifts, we should get to the other side of the space station largely unscathed, ready to fight another day.

Karl Dines is head of implementation services at Verbatim Asset Management

Four-stage approach to sunset clause preparation

1) Discovery: Contact existing provider/s to identify the assets held, as well as charge and non-charge information.

2) Identification: Segment client data and prepare client contact plan. Construct a pre-approach written document and prepare for client meetings.

3) Comparison: Obtain details of charges applicable to a new solution and prepare client specific charge comparison and non-charge comparison. Analyse and identify those that will benefit from migration, those that require further research and those that would not benefit from migration.

4) Implementation: Ensure you have a robust, repeatable software solution that enables you to transact a switch with as little duplication as possible, manage client data and manage your sales process. 

  

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