PS13/1: Sunset; the real view for platforms and advisers part 1RSS icon

Written by Ben Hammond on Wednesday 5 November 2014

With April 2014 a fading memory for most, the next legacy business challenge for platforms is April 2016’s ’Sunset clause’.  Alas, there is not likely to be a Hollywood movie ending for the majority of those involved, rather a complex programme of change with a wide range of potential outcomes.

Fund Manager payments to platforms must cease

The FCA’s PS13/1 statement, published on 26th April 2013, stated that all payments between fund managers and platforms must cease, including cash rebates.  For new business, the deadline was 6th April 2014 (‘Sunrise’ if you like).  Payments for existing business must also cease, however a sunset clause of two years was applied, mainly due to operational challenges and potential tax liability issues for customers.  Consequently, platforms now have less than 18 months to apply this ruling to all existing investments where required.

Retaining income and customer consent

If a platform wishes to retain an income from its customers, it will need to charge separately, or explicitly.  As this is a very similar situation to that which came about as part of RDR on 1st January 2013, most have a capability for ’unbundled’ or ’explicit’ adviser charging in place.  This along with a suitable set of clean or even, take a deep breath, ’super clean’ funds.  So, surely it’s a case of telling customers they must either pay you directly or stop receiving a service?  Not quite…

Although quite often forgotten or ignored, the customer must be the central focus here.  As with adviser charging, consent is required to set up new charging structures.  This process ideally needs to be applied as soon as possible and certainly from 6th April 2016, to all existing customers who are not already paying a separate platform charge.  So there will be considerable challenges for those who wish to keep their income flowing.

It is essential that platforms work closely with their advisers to transition clients into clean share classes and adviser / platform charging – some will be better at this than others.  Many platforms were running an explicit proposition for some years pre-RDR, possibly in parallel with a bundled offering and so may be lured or fooled into thinking the task is easy.  A majority of the big “fund supermarket” players are still taking fund income from a vast majority of their books and so will have a harder time making the transition.  The phrase “commission is dead” is frequently used but just as often ignored!

So, a warning: ‘Sunset’ may seem a long time away, however the nights are fast drawing in.  Continuing growth and success will come down to how platforms and indeed the advisers who use those platforms, sell the value of their service to the customer – a skill that doesn’t come naturally to all.

Coming soon, the second of this two part blog post PS13/1: Sunset; the real view for platforms and advisers part 2 - what are the possible outcomes? 

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