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Rebate debate: how platforms are handling the move to clean funds
by Jun Merrett on Sep 23, 2013 at 14:23
Earlier this month Novia announced plans to bulk switch all clients over to clean share classes. The move sparked a series of announcements from rival wraps and platforms in which they set their position on rebates, trail and moving to clean share classes. Here’s a quick guide to what platforms are doing.
In August Standard Life kick-started the debate by announcing that it would move to a 100% clean share class model by the end of 2013 and bulk convert all holdings on the platform to clean share classes from November.
The platform decided to make the move ahead of the Financial Conduct Authority’s (FCA) deadline. It anticipated that from 2014 all funds on the wrap would be a super clean share class, a preferentially discounted share class compared to the standard, or an industry standard clean share class.
David Tiller, Standard Life head of platform proposition, said: ‘[The] announcement marks a strategic move away from using a rebate-based mechanism to 'super-clean' share classes to pass on Standard Life negotiated enhanced terms to end customers.’
Wrap platform Novia followed suit earlier this month announcing plans to bulk transfer all client assets over to the clean share classes from October and vowed to cut all rebates on new and legacy business from April 2014.
Chief executive Bill Vasilieff (pictured) said that fund managers were to blame if clean share funds were more expensive than rebated versions.
'The FCA made it clear they don’t expect fund managers to use this as an opportunity to put their prices up. If it [the clean share class version of the fund] is more expensive it’s the fund manager’s choice not ours,’ he said.
Ascentric went one step further last week when it said it would begin the bulk transfer process towards the end of the year and has asked advisers not to make their own ad-hoc conversions but rather wait for the automated process instead.
Hugo Thorman (pictured), managing director of Ascentric, said: 'We think the right thing to do is to adopt one method. We think the instances where people will want to keep the retail share classes will be so small because of the tax and the feedback we're getting from the advisers is that they want to move to get rid of the tax. They want to move as quickly as possible so we're just responding to what advisers want.'
Alliance Trust Savings has written to advisers to inform them clients' existing investments will be automatically converted to the clean share class.
Patrick Mill (pictured), managing director of Alliance Trust Savings, said: ‘We are working to move all clients with money invested prior to 31 December 2013 to clean share classes. To facilitate this, we are starting to convert funds automatically where there is a clean alternative at similar or better terms.’
Skandia was the first of the traditional big three to announce its intention to continue to pay trail commission to advisers until 2016 and not enforce bulk transfers to clean share classes.
The platform said it would allow advisers to retain trail commission on its bundled book of business for ISA and collective investment account products until April 2016.
Peter Mann (pictured), Skandia UK's managing director, said: 'Our decision is not to take precipitous action, the sheer motivation of this is letting the adviser and client have the decision and a genuine desire to deliver the most choice over the largest period. We've got 100% of our business from advisers so why not trust them to run their businesses in the right way by 2016?
Skandia was quickly joined by FundsNetwork which confirmed it would continue to pay commission on legacy business up until 2016.
A spokeswoman for FundsNetwork, which is headed by Pat Shea (pictured), said: ‘We have no plans to switch off trail commission. However, we have seen a significant number of advisers move to fees already and we expect the majority of assets to have been converted by this date.’
Not one to be left out Cofunds too followed suit stating that it had no plans to bulk transfer clients over to clean share classes and would also continue to pay trail commission until 2016.
The platform, headed by Chris Last (pictured), said advisers should be control of the process not platforms.
But it wasn’t just the fund supermarkets which have taken this stance. While traditional wraps may not pay trail in the same way, some have decided against enforcing a bulk switch to clean share classes.
AXA Wealth platform Elevate said it would not be following wrap rivals Novia, Standard and Ascentric in moving all clients across to clean share classes, arguing such a move 'would not always be in the best interests of consumers.
Elevate managing director David Thompson (pictured) said that funds featuring cash rebates could in some cases prove cheaper for investors and that 'putting control in the hands of advisers is the best way to address the issue'.
Like Elevate, life company wrap Zurich has decided against a bulk transfer to clean share classes.
Mark Peters (pictured), head of retail wealth propositions at Zurich, said: ‘We want to ensure advisers have the widest choice over as long a period as possible, so have no plans to implement a bulk conversion to clean share classes.’
The oldest wrap Transact has taken a similar stance deciding against a bulk move to clean.
Jonathan Gunby, Transact chief development officer, said its decision was adviser led.
‘We think it’s better as a discussion between advisers and their clients,’ he said. If we found every IFA wanted an automatic transfer we would facilitate it, but that’s not the case, they want the choice and to give them it is the right thing to do.’
On the fence
Wrap Nucleus said it had not yet made up its mind as over a bulk move to clean but was currently asking fund managers to give it their best estimates of prospective total expense ratios (TER) for each fund.
The platform, headed up by David Ferguson (pictured), will then assess instances where moving to a clean share class does not put clients at a disadvantage from a TER perspective. It said it would consider initiating a bulk switching programme in those instances but will also allow ad-hoc one off conversions from advisers.
Aviva also said it had not made a decision on its stance but was working towards getting 100% of its funds with a clean share class version by the end of 2013.