Compass Risk Solutions > Insight > Uncategorised > Changing Customers to post-RDR unit classes

Changing Customers to post-RDR unit classes

The FCA has issued its finalised guidance on changing customers to post RDR unit classes in May (FG14/4).

The implementation of the RDR, adviser charging and the banning of rebates and commission payments from fund management groups from April 2016 has meant the creation of many ‘clean’ share classes.

The FCA have stated that they expect to see a significant move into clean share classes well before April 2016, it expects that in most cases there will be a converting rather than a switching of unit classes, as this will be more beneficial for clients by avoiding buying and selling costs and potentially time out of the market.

The regulator expects the authorised fund manager (AFM), platforms and or nominees to consider the clients best interest rule and principles for business before conversion, therefore the conversion should only take place if it is fair and in the client’s best interest.

In some cases it may not be in the clients interest, however if the AFM, platform or nominee no longer facilitate a bundled share class then this will not breach the best interest rule.

The AFM, Platform and or nominee must communicate the conversion with clients before it is carried out so that a client may take action, they must also advise if any other options exist for the client.

Action to be taken

We would recommend that you engage with any AFM and platforms that you have recommended clients to invest with and understand what action they are taking and when.

We would recommend that you engage with all your client about the changes of share classes and ensure that you have an appropriate adviser charging agreement with your clients, it may also be a great opportunity to re asses the funds your clients hold and whether any changes should be made taking into account the clients attitude to risk, capacity for loss and risk required.