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.