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Old Mutual: Fund mergers will trigger clean share class conversion

Old Mutual Wealth is to convert clients into clean share classes automatically where they are invested in funds that merge following guidance from the FCA.

The regulator has given Old Mutual guidance clarifying that where funds are merged this will class as a trigger for movement into clean versions of the fund.

The issue of fund mergers or corporate actions was not originally clarified by the FCA in the platform policy statement published in April 2013.

Old Mutual last week set out its bulk conversion plans, which will see it undertake the first switches in February 2015.

It says 75 per cent of advisers have already moved client assets from commission-based share classes to fees and that all clients in loaded share classes will be moved by the end of 2015.

The move applies to Isa accounts and collective investment accounts whilst retirement accounts and investment bonds are unaffected.

The FCA sunset clause on all payments between fund managers and platforms comes into force in April 2016.

Old Mutual Wealth is currently moving clients onto its clean charging structure, Charge Basis 3.

It says the merger clarification represents the only clean share class switch trigger which is not instigated by an action taken by the adviser or their client.

An Old Mutual Wealth communication sent to advisers last week clarifying its bulk switching strategy says: “As a consequence of further guidance from the FCA, the list of transactions that trigger a move to Charge Basis 3 will be extended to include fund mergers.

“This is the only automatic trigger for a transfer that is not instigated by adviser or client.

“Only our Isa and collective investment account products are affected by these rules. Our pension and bond products are not. We communicate with advisers in advance where they have clients which are impacted.”

An FCA spokesman says: “The effect of corporate events, including fund mergers, was not covered in detail in PS13/1, because it is not possible to give an answer covering all the types of corporate events and their impact on a product. 

“However, the provisions published with the policy statement included a transitional provision stating that a platform service provider may continue to accept remuneration in relation to a retail investment product transaction executed on or before 5 April 2014, if, after 5 April 2014 ‘no change is made to that product or the investment held in that product; or, where there is such a change on or after 6 April 2014, only in relation to the unchanged part of that product’. 

“So a firm will need to consider whether, following a corporate event, a product is essentially unchanged, or the change is such that it leads to the product becoming a different product. In the latter case, the platform rules will apply to the new product.

An Old Mutual Wealth spokesman says: “In PS13/1, there are a number of platform transactions which trigger an automatic move to an unbundled charging basis.

“The FCA has clarified these include certain corporate actions on funds.”

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