Sunset clause

From 6 April 2016 the FCA's rulings will come into effect regarding how platforms should be paid for assets they hold on behalf of clients. This will have complex implications for platforms and advisers to consider:

  • Platforms operating bundled charges will have to agree a new charge with the end client by 6 April 2016 or give away their services for free.
  • Revenue from fund manager rebates can no longer be kept. This revenue must all be passed on to clients in the form of taxable unit rebates. Or the platform could convert clients to rebate-free ‘clean’ share classes.
  • Advisers will be unlikely to receive commission because this is mostly taken from rebate revenue; which platforms won’t make from 6 April 2016.
  • Discounts to fund groups in the form of cash rebates will be banned. Instead platforms can either pay these as unit rebates (generating a client tax liability), or negotiate discounted share classes with fund groups.

Standard Life Wrap platform is ready for these requirements and has become the first scale platform in the UK to move entirely to unbundled (clean) mutual fund share classes for both new and existing clients.

What the sunset clause means for clients and commission

What the sunset clause means for individual client arrangements very much depends on how the platform originally charged the client for its services. In broad terms there are three categories:

Existing arrangement Impact on platform charges Impact on investment charges and tax treatment Impact on adviser remuneration
Fully bundled AMC (investment, platform and advice) Must be fully unbundled. Client must agree to new charge

Pay fund manager rebate in units. Basic tax applied at source (additional tax paid on client tax return)

OR

Convert to unbundled share class (rebates not required and additional tax liability removed)

Trail commission likely to stop (no longer funded by a rebate)
Explicit platform charge and Fully-bundled AMC

No change

(platform charge already agreed by client)

As above As above
Explicit platform charge invested in unbundled share class

No change

(platform charge already agreed by client)

No change

(assets already rebate-free. No additional tax liability payable)

No impact

Business threat or opportunity?

It’s tempting to view the sunset clause purely as a threat, but like RDR, it will create opportunities to make client relationships more modern and sustainable.

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Next steps

The pressure on revenues is likely to grow as the deadline approaches, so it is essential to start planning now. Wherever revenue from a client is at risk, there are three potential options:

  1. Do nothing and allow your revenue to run off in 2016.
  2. Update your existing arrangement without moving platform.
  3. Migrate your assets to a new platform.


Our Wrap platform is fully 2016 ready and we have a range of asset migration support in place ready to help protect your revenue going forward.

Asset migration support

If you're already aware of what the sunset clause could mean for you and are a registered Wrap user, log in to find out more about our asset migration support.