Clean share classes

Following the HMRC announcement that rebates will be taxed for assets held outside a tax wrapper the demand for clean share classes has oustripped supply.  The FCA platform paper also confirms that rebates to customers must cease from 6th April 2014 so a massive switch to clean share classes is now essential to comply with FCA rules.

There is nothing to stop funds providing unit rebates and some of the larger platforms are negotiating for low charged share classes especially for them (which will lead to significant problems for reregistration).  It is also difficult to see how some platforms will be able to compete if faced with significant differences in the share classes available.

It is interesting to see how those that once fought against the abolition of rebates are now resigned to the inevitability of the change and believe it is in the best interest of customers as it removes potential conflicts of interest.  Nevertheless it will be a significant cost to the industry that is another fall out of RDR, which seems to spread its wings beyond adviser training and the abolition of commission to other areas.

The FCA are consulting on impacts to adjacent industries like SIPP providers.  So far life companies are exempt but will the regulator look into this area also?  Life companies appear to be the only firms with books of legacy commission that will effectively cease for platforms where the sunset clause abolishes all payments to advisers by April 2016.  There is a trend amongst life companies to withdraw legacy trail commission where there is no activity seen on an account and eventually even this anomaly is bound to close.

For the adviser that once relied upon trail commission for his retirement this is the end of the road.  Trail commission was part of the payment for the initial advice and not designed to provide ongoing services as may mistakenly believe.  If it had been for ongoing services then it would potentially have been subject to VAT.  However the perception that trail was there for provision of ongoing advice was widely held although it often went on for many years and transferred across advisers who may never have met the original client was not unusual.  Perhaps it is time for this practice to cease altogether and for the regulator to extend its ban to create a level playing field.

 

Published: May 2013
By: Anthony Smith

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