The one clause in the recent platform policy statement that will have by far the most impact on the industry is the one concerning the future of fund manager rebates to platforms, the so-called ‘sunset clause’, which bans rebates from fund managers to platforms on legacy business from April 6 2016.
This will have an enormous impact on bundled platforms’ finances and, in particular, affects the big fund supermarkets, which operated a bundled pricing model for more than 10 years and right up until the RDR on January 1 this year.
What this clause means is that almost the entire income for these platforms, including the income which funds the commission to advisers, will be wiped out completely from 2016 unless they can get pro-active agreement from the end investor to a new charging structure which will include a specific platform charge.
The offer will almost certainly be a cheaper clean-fee share class together with the new platform charge, resulting in a neutral position to the investor.
This might seem straightforward, but there are potentially severe problems lying ahead. The first of these is – can the platform actually make contact with the client? People move houses, and gradually over time a proportion of investors will be difficult to contact, and if there is no contact then clearly the new charging structure cannot be implemented.
Even if they are contacted, the platform is then relying on the investor to respond to the communication, and if the communication is such that they are being made a neutral offer, will they bother responding? Or at least, how many will decline?
Then there is the problem that many of these investors were originally sold on the platform concept with the misleading claim that the platform was provided ‘for free’.
This is bound to lead to unease and suspicion among these investors and rightly so. Again, how many of these people will fail to co-operate?
For advised clients, the problems should be more straightforward, but even then there will be instances where the client-adviser contact is lost.
For advised clients, the success of the exercise will depend on a great deal of co-operation between the advisers and the platforms involved and where the exercise doesn’t succeed the trail commission will be switched off anyway.
So advisers will be involved in a great deal of work just to maintain their income level – and the income, incidentally, will need to be from adviser charging.
All of this will become a massive logistical problem for the bundled platforms, and one which could have been avoided, as all of this was flagged as far back as January 2002 in CP121.
When we launched the Novia platform in late 2008, we did so on a totally transparent and unbundled model.
The RDR had already been announced, but the bundled platforms chose to sail on as they had always done, so they have nobody to blame for their current plight but themselves.
And if anyone is in any doubt about the scale of this problem, I refer you to a quote by Malcolm Kerr of Ernst & Young, one of the leading platform commentators, who states: “The requirement to ‘unbundle’ and move clients on to clean share classes is a serious challenge for advisers, platforms and fund managers. It may have a greater impact on the market than RDR.”
