Hargreaves to move to clean fee share classes

Peter Hargreaves, executive director of platform giant Hargreaves Lansdown, has revealed the business intends to move all its clients over to clean fee share classes to meet regulatory changes.

Hargreaves, head of the country’s biggest D2C platform with assets under administration of £26.3bn, said he expects the FSA to move towards a commission-free world, but added his business needs clarity from the regulator before it can implement changes.

“Eventually we would like to get all clients onto clean fee share classes,” he told Investment Week.

“We have plans to treat all clients in the same way, as we believe [the FSA] will draw a line under legacy business.”

Investment Week revealed last week the regulator has been holding informal discussions with key industry players about a potential ban on all trail commission paid from funds held on platforms.

The plans are understood to have already contributed to a delay to the final platform rules, which are now unlikely to be published until 2013. If introduced, the proposals would mean the end of fund commission rebates paid to advisers from platforms from 1 January 2014, including legacy arrangements.

To introduce such a ban, the FSA would target platforms, insisting legacy money in investment funds is moved over to new pricing models by the start of 2014. This may include transitioning clients to clean share classes.

Hargreaves said such a tight deadline poses a number of risks to the financial services industry, adding more clarity is needed on the issue.

“It would be sensible to give people some time to change to the new system, or else everyone will go out of business,” Hargreaves added.

David Ferguson, CEO at wrap platform Nucleus, said on a practical level, implementing a switch of this magnitude would be a major challenge for platforms with big books of legacy assets.

“If the ban is going to be implemented in 2014, the FSA needs to bring out firm rules imminently, as 12 months is an extremely short time frame for the legacy commission ban to take place,” he said. 

Peter Mann, managing director (UK) at Skandia, added: “We would favour a two-year sunset clause from the implementation date. This would enable a realistic and orderly transition and avoid the potential chaos and poor customer outcomes that would be created by an immediate change on 1 January 2014.”

Simon Ellis, managing director of Legal and General Investments, argued the proposed ban could create unforeseen risks to the business models of platforms and intermediaries.

"I would also question whether it is either fair or reasonable for platforms to have virtually been forced to spend millions on developing systems to cope with the mixed model of 2013, only for that investment to be potentially made worthless within a very short time," said Ellis. 

"These discussions only serve to confuse the industry and its customers further, and to undermine confidence across the board."

The FSA said there is nothing in its existing or proposed rules which would ban all commission for business written on platforms, including legacy arrangements.

“We have to consult on any new rules before we introduce them - if you look at the platforms consultation paper, it is clear we have not consulted on these issues,” it said. “The rules on adviser charges are clear: advisers can continue to receive trail commission for advice given before 31 December 2012.

“They must be paid out of adviser charges for any new advice given from that point onwards.”