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Seven steps to Sunset: Steps 5-7

In his final article on the Sunset Clause, Cofunds’ Andy Coleman assesses steps five to seven for moving an advisory business from trail commission to unbundled charging by looking at how Cofunds is progressing the last stages of the transition for its users

In our two previous articles Moving a business efficiently to unbundled charging – steps 1&2 and Moving efficiently to unbundled charging – Steps 3&4 we’ve been assessing how much of your business is affected by the April 2016 Sunset deadline, and how to determine which client services you might offer on an unbundled charging basis. Now, with just months left to go, we’re on the home stretch – looking at our final three steps:

5) Setting up your fee-based services

6) Engaging with clients; and

7) Making the final conversion of investor fund holdings to clean share classes.

Share class conversions

At Cofunds we’ve seen an increase in activity across all these final steps in recent months. We are about to provide some vital support in this process – and step 7 in particular.

This autumn, we are sending out letters to all Cofunds-based customers who are still holding commission-included share classes to inform them that we’ll be converting their holdings to commission-free share classes. There will be two timelines for this process:

• Where investors will be financially the same or better off by moving to clean share classes, the conversion will take place 30 days after writing to them to enable them to benefit from advantageous pricing as soon as possible.

• If a client is going to be financially disadvantaged by moving to clean share classes, conversion will take place 90 days later to give the investor time to take an alternative course of action if they wish.

• The 90-day extended period will also be offered to investors who are looked after by a third party, such as power of attorney, court of protection or executor, or if they live overseas.

Sales management information (MI) will be available to track where your clients are on this conversion process, and a new investor portal will be available to support and inform customers. Through this initiative, and by working closely with fund managers, we hope to convert all remaining clients to clean share classes well before the 6 April 2016 deadline, so not to interfere with your end-of-tax-year activities.

Please note that during this conversion process, there are some transactions clients won’t be able to perform. These include switching, selling or transferring to another provider. Any instructions received during the conversion period will be held and processed once the conversion is completed.

Post-conversion steps

With Cofunds taking care of the share conversion process, firms will hopefully have more time to focus on re-engaging with remaining clients and assigning them to an appropriate service segment and fee model after share class conversion has gone ahead.

It is crucial to remember that conversion to commission-free share classes means trail commission will be switched off. So to generate an ongoing revenue post-conversion, clients will need to be assigned to a fee-based service, which they must agree to pay for up front.

As we’ve discussed in these three articles, this may mean offering a choice of service propositions from full advice to light-touch advice. If a client is unsuitable for, or unwilling to pay for, advice, a self-directed online proposition may be appropriate.

Cofunds allows multiple advised and self-directed segments to be set up on platform, and different fee models assigned to each. So these might include a standard fee model for a core proposition, complemented by a low-cost fee model for less active clients, and a premium model for higher-value clients who want a very hands-on service.

In our experience, firms are choosing to set up just one or two propositions. It’s also notable that the average annual adviser fee among firms using Cofunds is 0.71%. This is substantially more than standard trail commission – suggesting that firms have been successful in articulating to clients the benefits of their fee-based service and the value they can add.

Prioritising action

Re-engaging with clients and getting them to agree to a fee-based service can take multiple communications. To help, firms have been making extensive use of Cofunds tools to determine which actions and clients to prioritise. For example, Sales Management Information (MI) Sunset on Cofunds is being used to identify clients who:

• Still need to affirm agreement to adviser fees

• Haven’t yet set up Sale for Regular Payment instructions

• Hold funds for which there is no clean share class equivalent.

By combining this information with mail-merge, firms can tailor their client communications precisely to different needs.

Meeting the deadline

The last few months have been very busy as firms move their clients over to their fee-based services. If you haven’t had time to complete all the steps to Sunset yet, don’t worry. By taking a lead on share class conversion, we hope to have all clients on Cofunds moved to commission-free funds well before the 6 April deadline. Once this process is complete, these clients can be assigned to your chosen service proposition and fee model.

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