The Transition from Pre-RDR to Post-RDR Unit Classes

The FCA has set out in Finalised Guidance document FG 14_04 ‘Changing customers to post-RDR unit classes’ what it expects from all interested parties in the conversion of investors from pre-RDR unit classes to post-RDR unit classes.

In April 2013 the FCA outlined in Policy Statement PS 13_01 ‘Payments to platform service providers and cash rebates from providers to customers’ the requirements and timescales for the industry to introduce ‘clean’ share classes for units held on platforms. It also outlined the banning of payments from product providers to platform service providers.

 This document answers the following questions:

  • whether conversions can happen in bulk rather than individually; 
  • if conversions can happen without the express consent of the client; 
  • whether advice is needed; 
  • the role of advisers in the conversion process; 
  • whether a new disclosure document (e.g. a Key Investor Information Document (KIID) for a UCITS scheme) needs to be issued to the customer before conversion. 

It also clarifies the difference between converting and switching units as well as the tax implications to the client of each. Briefly, converting is replacing one unit with another of a different unit class whereas switching involves cancelling one and replacing it with another. 

The document clarifies the rules and guidelines that should be considered before conversions take place, with particular emphasis on the need to consider and act in the client’s best interest at all times; for example, where the reduced AMC combined with any new platform charge (or other charges) will lead to an overall increase in costs for the client, this is unlikely to be in the client’s best interests.

There is information in the document for firms that operate nominee accounts and guidance as to when explicit client consent is needed for the transaction to proceed.

As legacy payments to platform providers come to an end in April 2016, the FCA suggests that advisers may wish to consider contacting platform and product providers before April 2016 to discuss options and processes. The platforms and providers have also been encouraged to engage with financial advisers in good time.

The Finalised Guidance document can be read here.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

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Our View

This is essential reading for all investment firms. It is only 5 pages long but contains very important information.

The transition to clean unit classes for platform service providers has been part of the industry fabric for over a year and if firms are not actively planning for this they need to be taking action now. You need to be following the key principle that any conversions or switches must be in the customers’ best interest. 

Action Required By You

  • Read The FCA guidance;
  • If not already in place, draw up a plan and apportion responsibilities to staff;
  • Implement the plan and manage it to conclusion; 
  • If you are at all unsure seek guidance from your ATEB consultant.

About the Author

Steve is an ATEB Director and has a deep understanding of all matter regulatory, built up over his 30 years + in the industry. With a training background and a technical brain, he overseas numerous complex projects and client implementation work.

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