Conversions and platform transfers ……is your business aware and ready for next year?

Expert: Jennifer Belton, Senior Manager, Adviser Experience, FundsNetwork
Facilitator: Martyn Laverick, Phase 2 Consulting

Session summary:

The session started with a poll of the participants, asking if they had actually heard of the Investment Platform Market Study. Thankfully the majority of the group had heard of the study and, whilst not being fully prepared, felt they had a reasonable handle on it.

Jennifer went through the presentation to give the audience a feel for some of the key issues that were going to impact them in February 2021. In addition, she also highlighted some of the difficulties faced by the industry as the fund management groups were not under the same type of pressure to resolve this as the platforms were.

The Platform Market Study brings about the regulation to introduce conversions as part of a reregistration journey. This would be to facilitate an in-specie transfer of a fund by transitioning through a common shareclass available to both platforms, whereas previously it’d have needed to be encashed.

This change is intended to keep the client invested as much as possible, therefore reducing the risk and inconvenience to the client. This will work to encourage switching platforms more regularly to get the best price for clients.
Due to varying levels of maturity within the industry, this change highlights some challenges for advisers and clients along an already complex journey.

The adviser needs to be aware of how this journey will change, and how it will appear to their client so that they are able to explain it to them clearly.

Some industry parties have low automation, this will inevitably result in additional delays to an already lengthy journey.

Advisers also need to be aware of their options at each platform - for example FundsNetwork will automatically convert your client to the best available shareclass, but also allow you to opt out of these post rereg conversions to avoid delays. Other platforms will have different offerings.

The conversation then fell into two camps. The first part of the conversation was around the varying degrees of service offered by platforms. Many were critical as to the time it took to re-register assets with the view that the seeding platform made life difficult in order to retain the assets.

Therefore, for an IFA firm, it was critical that they undertook in-depth due diligence on platforms before they made their choice in order to provide the firm with the best platform possible for their clients. Many firms were frustrated with the integration difficulties of platforms into their Back Office systems. This was seen as a wake-up call to platforms and providers to help make this journey as client-friendly as possible.

Given the time delays experienced by many firms in the room it was felt that certain platform providers should be penalised for the poor standards of service especially when certain platforms levied exit charges on clients as well.

The second part of the conversation was about what they actually needed going forward. Given the size of the businesses within this roundtable many of them were already questioning why they should use a platform at all and why don’t they go down the route of having their own nominee.

This is a hugely interesting development as it ties in to the Owen James scene setter information outputs as to how larger IFA businesses see the compression of the value chain happening. Having your own nominee puts you in complete control and removes one potentially unnecessary cost, and the hassle involved, from the client proposition. Many firms had started down this route already.

Conversations then went on around the level of funds under management needed to have your own viable nominee. It was muted that £300 million could be easily be an accessible level however what was not taken into account was the compliance oversight that would be needed and in the vast majority of cases this would not be found in a firm of that size.

The interesting aspect of this debate was that this shows the direction of travel of the larger businesses away from the use of mainstream platforms and into their own nominee services. This could be a concern for the platform market as this could significantly impact their financial viability. However, given that the IFA market is predominantly made up of smaller to medium size businesses, the platform market would still be required to serve these businesses. What it potentially shows is that a market split is on the horizon of the type of businesses that will use platforms.

If this session were to be run with the smaller to medium size IFA businesses, I feel that the output would be very different. However, this must be very interesting for FundsNetwork to get feedback from some of the larger businesses as to their thought process around this matter.