The Sunset Clause…What is means for Advisors and for Recruitment

Simon RoderickResearch, insights & industry news

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A new day for financial advice

Much as the Retail Distribution Review (RDR) effected change upon the financial industry in an attempt to raise professional standards and provide clients with greater transparency, yet again the Financial Conduct Authority (FCA) are implementing new changes to charges applied to platforms, bringing about striking transformations on the horizon for both financial advisors and their clients.

As it currently exists, platform providers can offer two types of charging structures, both bundled and unbundled. The first provides the client with a single fee which is then separated between platform, financial advisor and fund manager, yet the percentages of these services are not known to the client who invests their assets. The latter describes a charge whereby each percentage is explained to the client who pays three separate fees, but is fully aware of the charges taken place. As of the 6th of April 2016, the FCA have ruled that platforms operating bundled charges will have to operate in a different way, forcing them to give services away for free or convert to an unbundled charging structure. They have also ruled that fund manager rebates can not be retained and this will be given back to clients in the form of taxable unit rebates. Conversely, the platform may convert clients to rebate free clean share classes.

What are the implications for Advisers?

Advisors as of 6th April 2016 will no longer have access to trail commission which can make up a large part of the advisors income. This ruling by the FCA has also generated a bigger workload for advisors, who must now prepare their clients for the changes to trail commission. The pressure really has been put on the shoulders of advisors as clients will now be aware of charges faced when investing their assets through platforms. In turn, this generates demand for businesses to keep client relationships healthy as well as feel the burden of generating new business in order to bridge the gap of losses in trail commission.

What does this mean for recruitment?

Moving forwards it seems that the best way for advisers to protect their business is to agree an ongoing adviser charge with their clients. However, this will increase their workload and probably limit their ability to work with a large portfolio of clients. With other increases in the demands placed on advisers has already meant that many are stretched.

Therefore, it may well be that that Advisers build bigger teams, who look after smaller amounts of clients who build and maintain strong client relationships whilst keeping heads above compliance and regulatory paperwork.

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