9th December 2013

FundsNetwork: 2013: The start of a snowball effect

FundsNetwork™ rounds up 2013 as a year of continued change as advisers and providers continue to tackle new and forthcoming regulation.

As the Retail Distribution Review dawned on 1^st January 2013, no-one quite knew how the industry would respond to such a change. As a result, this year took on a ‘wait and see’ approach as the regulator, providers, platforms and advisers found their feet.

Re-registration

1^st January not only marked the first phase of RDR implementation, it also marked the launch of in-specie platform to platform re-registration as an industry standard. Whilst it sounds simple, the regulation fell short of imposing automation. This led to very few platforms and fund providers being ready. Whilst many have since adopted automation there is still a significant number who have not – this has had, and is having, an adverse impact on customer outcomes. Many re-registrations are still being completed manually, via paper, instead of swiftly through electronic automation, causing delays for advisers and investors.

Taxation of rebates

One of the biggest shocks of the year came via HMRC and its decision to tax rebates to investors with an almost immediate effect timeframe. Platforms had to quickly deliver solutions to accommodate this position. Many platforms, providers and advisers are now going through the process of conversions from bundled to clean share classes and analysing in which scenario a client may be worse off financially. This is a situation that is likely to take some time to unravel as further guidance and clarification is needed.

Cash rebates

In April’s paper PS13/1, the FCA confirmed its ban on cash rebates but added it would allow a nominal, ‘de minimis’, cash rebate of £1 or less per month, for each fund held on the platform. The regulator also pointed out that the rule would not prevent a platform from receiving a rebate from a fund manager in cash, providing it is passed on in full to the customer in additional units. Far from making the RDR more simple and transparent, it has made the adviser’s job much harder in terms of keeping on top of small payments to investors and the forms in which they are received.

Increased adviser pressure

In the FCA’s review of RDR implementation, which highlighted some concerns on cost disclosure and restricted versus independent, the regulator implied that it would take a harder line with adviser firms who it believed were not implementing or interpreting the RDR correctly. The regulator is due to conduct another review of adviser firms shortly, so advisers should be careful to ensure that they have interpreted the FCA’s guidance correctly.

PS13/1 also stated that the onus is on advisers to ensure that the providers they are using are complying with the rules – so they have to be sure that the provider is not receiving payments from fund groups and is operating without fund bias.

Super Clean

2013 also marked the birth of ‘Super Clean’ which fast became the new industry buzz word. Not only have advisers, platforms and fund providers had to get their heads around clean share classes and making them available, they have also had to consider the meaning and consequences of their cousin - super clean. Clearly there are still on-going discussions between providers and fund groups but it is likely that not many fund houses will offer super clean share classes out of the gates. Another ‘wait and see’ affair.

Ultimately, the main focus must be the total cost to the client, taking into account all components of price (including the platform price), not just the rebate or lack of rebate being offered. It’s likely that some clients will be in a better position without a rebate depending on the platform they and their adviser use.

Sunset clause

Finally, 2013 is rounded off with a focus on the impending sunset clause. The FCA issued guidance making it clear that bulk conversions to clean should not happen if it is not in the clients’ best interest.

 Many platforms and providers have interpreted the rules differently which has caused great confusion. Some are in the process of bulk converting assets from bundled to clean, while others are requesting that advisers take control of how and when they convert their clients to clean and ultimately to fee-based advice. Neither approach is wrong (as long as no client ends up disadvantaged), but clearly the two are very different. Advisers now have to consider the implications of these approaches. This becomes harder if the platforms they are using all take different approaches.

For platforms, there are still many unanswered questions that need to be addressed by the regulator in terms of what ‘disadvantaged’ means and how it is calculated but FundsNetwork believes that the adviser that has the relationship with the client and should therefore make the decision on the appropriate share class and remuneration structure. 

Pat Shea, head of FundsNetwork, comments: “2013 has certainly been a year of continued change and this is just the beginning. Advisers have had to contend with new regulation, different interpretations of rules and differing degrees of platform and provider readiness and, for many, the outcomes will not have taken them any further forward. There is still an abundance of uncertainty, confusion and questions remain unanswered – the mist has not yet cleared.

“However, there is opportunity. Advisers who have survived 2013 are going to see plenty of new opportunities through improved platform services, platform pricing pressure and new innovation. Platforms and providers are in the process of responding to adviser demand and becoming better equipped for the post-RDR landscape. The future is bright for advisers but more change is on its way.” 

Key milestones for FundsNetwork during 2013:

January – Starting the year with £40bn AUA and an increased adviser facing support team.

February – FundsNetwork receives overwhelming demand for adviser fees seminars and goes on the road to 33 nationwide locations.

March – FundsNetwork launches dedicated adviser Twitter and LinkedIn channels.

April – FundsNetwork enhances its Navigator investment solution to include 15 risk-profiled Fidelity funds. 

May – CWC Research, in association with FundsNetwork, launches “No small change – Benchmarking the Adviser business.”

June – FundsNetwork appoints Jon Everill as Head of FundsNetwork Advisory Services

July – FundsNetwork announces details of its adviser pension ahead of its September launch. 

August – FundsNetwork goes on the road to deliver a nationwide series of pension seminars. It also further expands its adviser facing support team.

September – Pat Shea announces FundsNetwork’s multi-year multi-million pound investment programme. FundsNetwork also launches its new adviser pension – which attracts lots of interest and new business. 

October - FundsNetwork announces that it is ready to offer clean only share classes from the end of the year. 

November – More than 1900 clean share classes available for investment through FundsNetwork.

December – FundsNetwork predicts that 2014 is set to re-define the platform market. FundsNetwork’s assets under administration reach £46bn a 15% increase since the beginning of the year.

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RDR, Investments