That was the warning this morning from Nucleus as it published a new white paper.
The platform has produced the report in the run-up to the switching off of trail commission on ‘legacy’ funds in April 2016.
Some advisers have dismissed the threat to revenue as “only a small part of my income is exposed”, according to Nucleus, but bosses believe this could turn out to be around 15% of income for many firms, which may amount to 50% or more of actual profits.
Barry Neilson, Nucleus business development director, said: “Given the implementation of the sunset clause is almost upon us, now is the time to stop debating the merits of the regulation and for advisory firms to ensure they are adequately prepared for the changes.
“Our worry is that unless they take swift action, advisers could face loss of income that may not be fully offset by a reduction in costs. The worst of all possible worlds is that firms are committed – morally, commercially or even contractually – to deliver a service they are no longer being remunerated for and this then results in a significant drop in profitability.”
The company identified three main options open to advisers but warned there are a “number of pitfalls” when considering each of these.
The options that firms will take will depend to a large degree on the reliance their business has on the ‘old’ trail for their profit, the firm said.
The options it outlined were:
1) Do nothing. Trail commission income on any remaining ‘legacy’ funds payable via platforms will cease in April 2016.
2) Do not change the platform, but agree an adviser charging structure with the client.
3) Transfer the clients’ holdings to a new platform, triggering the need and opportunity to agree a new clear adviser charge with the client.
Mr Neilson said: “On the positive side, there is a real opportunity to transition at least a proportion of the clients affected into a more appropriate environment, which, if revenue, profit and servicing issues are all fully understood, will benefit both parties.
“We know that many firms are already looking at this area closely, but for those that haven’t we would urge them to work through the action plan we’ve put together and decide what is best for their business and their clients.”
The white paper – which includes a 13-step action plan – can be downloaded from the Nucleus website.