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Will IFAs fail to change charging fee structure in time for ‘sunset clause’?


Four in five (80 per cent) intermediaries believe that some advisers will struggle to fully complete the transition from commission to fee-based remuneration before the Financial Conduct Authority’s legacy business ‘sunset clause’ in April 2016.

That’s according to research by Investec Wealth & Investment (IW&I).
According to the study, advisers risk missing the deadline due to failure to change their business model (cited by 59 per cent of respondents) and a fear of losing clients and revenue (58 per cent). Nearly half (49 per cent) of IFAs cited administrative inefficiency and a third (32 per cent) believe that some advisers are waiting for providers to stop trail commission altogether before making the transition.  Similarly advisors may not appreciate that from 31 December 2014 trail cannot be taken automatically on top-ups to existing arrangements.
IW&I’s research shows that since the introduction of the Retail Distribution Review (RDR) IFAs have seen an average of 61 per cent of their commission-based revenue shifting to fee-based revenues.  However, 15 per cent of advisers have so far moved just one quarter of their commission based revenues to fee-based revenues and 28 per cent have half or more to transfer.
Mark Stevens, head of intermediary services, Investec Wealth & Investment, says: “This study shows there is widespread doubt in the adviser community that all IFAs will be able to make the transition to a fee-based model before the sunset clause takes effect.  For those firms that have yet to change their business model the challenge becomes more formidable. 
“Faced with the changes required by the RDR, advisers have increasingly outsourced client portfolios to a discretionary fund manager.  In doing so they have been able to access an investment professional, delegate the day-to-day investment management process and reduce administration.  We have seen a sustained increase in both the quality and quantity of our DFM partnerships and believe this trend will continue, driven by the demand from firms that still face having to make fundamental changes to their business models.”
Under the RDR advisers are required to ensure transparency of all costs and inform clients of whether they are providing advice on an 'independent' or 'restricted' basis. The change is intended to remove the risk of clients continuing to pay opaque charges without any ongoing advice, remove commission bias and ensure all recommendations are suitable.

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