Written by Ben Hammond on Monday 13 April 2015
The end of trail commission is fast approaching with the distraction of changes such as pension freedoms which went live last week meaning that good ol’ PS13/1 just hasn’t been getting the coverage it needs (and probably deserves). So what’s been happening in the last few months and how far is there left to travel?
As a reminder, 6th April 2016 marks the date by which all payments between fund managers and platforms must cease. The upshot of this is that for most people (unless you’re quite happy paying tax on your unit rebates, thank you), existing investments must be moved into clean share classes, effectively ending trail commission. So by now, with a little under 12 months to go, advisers, platforms and every Tom, Dick and Harry should know what their plans are, right?
Platforms first and they’ve actually been quite busy. Many, such as ATS, Ascentric and Novia have either completed or are almost there with their planned conversions activity, but some others have been fairly quiet until now. Cofunds have recently launched a number of initiatives and tools for advisers to use before they take up the gauntlet themselves and say that over 60% of assets have already moved into clean share classes; Old Mutual have made clear their plans for making sure everything’s sorted by late 2015; Fidelity have said much the same, making conversions voluntary until late 2015 when they’ll step in if necessary. Just a few examples of what may seem like simple solutions, but that have been 2 years in development, mostly because platforms can’t be seen to be stepping on advisers’ toes too early.
I think Sunset means we will see assets move away from some of the larger, ‘traditional’ fund supermarkets towards the more nimble, fuller-featured wrap platforms for a couple of reasons:
Firstly, the more niche platforms tend to be newer and smaller, meaning there should be less red tape when it comes to innovation. This could make them an attractive solution for like-minded advisers. Secondly, the distraction and operational effort required to convert such large books of business out of bundled share classes will surely have the knock-on effect of a drop in service quality to advisers and clients alike. Standard Life have already said they are after assets leaving supermarkets for this very reason with other, more modern, platforms also looking to take advantage.
Life companies are of course getting in on the game, some building a new offering, be it D2C or otherwise, others simply going out and buying a platform. Legal & General (Cofunds), Old Mutual (formerly Skandia) and Royal London (Ascentric) should be and indeed are taking full advantage of the platform offerings available to them. Add a splash of fund design and wealth management expertise and you can really start to take advantage of the whole investment value chain.
And so onto advisers. Parmenion has estimated that up to 20% of a firm’s income will disappear when Sunset hits next year, so advisers really do need to be thinking how they can retain as much as possible come next April. As I’ve highlighted previously, this will mean persuading customers they want to pay for services explicitly when they may not realise they’ve been paying for ‘advice’ for years. If they haven’t seen or spoken to their adviser for what could be several years, any advice will probably be viewed as new business. The quality of the client-adviser relationship will be key, with the adviser expected to clearly show the value they are giving for the charge being made – something the FCA will no doubt be keeping an eye on.
A large chunk of advisers are just not going to be prepared for the big switch off and so could make a swift exit from the market, selling out to larger firms who will be keen to grab a bargain. Other initiatives, such as the aforementioned pension reforms, will inevitably provoke clients into making contact with their adviser, possibly after several years of silence – a perfect opportunity to re-engage for both parties.
2015 will be a year to concentrate on client retention for both advisers and platforms. Service, pricing and in a lot of cases regaining the trust of existing clients will be at the top of everyone’s agenda.