How the expanded Dormant Assets Act revolutionises financial planning

The legislation governing dormant assets is changing in ways which will bring them much more firmly into the world of advisers.

The most dramatic shift under the Dormant Assets Act (DAA) 2022 is that it is being broadened to include insurance, pensions, shares in UK public companies and investment and wealth management sectors.

The length of time in which an asset can be deemed dormant varies depending on the asset type. Asset groupings are the original bank and building society accounts (15 years); insurance and pensions (seven years); investment and wealth management (12 years); and securities (12 years).

To date, £1.7bn has been transferred to the Reclaimed Fund Limited. The expansion of the scheme is expected to unlock an additional £880m

Though there are differences in calculation, the value of the dormant asset will be the amount at crystallisation plus interest accrued, adjusted for fees owed as per the original policy.

The DAA effectively expands on the 2008 Dormant Bank and Building Societies’ Act, which covered dormant bank accounts.

Many more providers will eventually be sending money to the Reclaim Fund Limited (RFL), managed by HM Treasury, with funds distributed via the National Lottery Community Fund. RFL is an arms-length body of HM Treasury, with its own board of directors.

To date, £1.7bn has been transferred to RFL, with £982m allocated to over 2,500 community initiatives, and £132m reunited with owners. The expansion of the Dormant Assets Scheme (DAS) is expected to unlock an additional £880m.

Assets typically become dormant due to providers losing contact with their clients. The average person in the UK changes their address eight times during their lifetime

The DAS is now open to insurance and pension providers, and providers such as Aviva and Legal & General have already joined. RFL expects other sectors to join the Scheme in the coming months.

Danielle Higgins, managing director of The Tracing Group, the experts in reuniting assets with clients, says:

“Assets typically become dormant due to providers losing contact with their clients. The average person in the UK changes their address eight times during their lifetime. Certainly in the pre-digital era, changing an address was manual and time-consuming. This leads to what are described as ‘gone-away’ client situations, when clients fail to update their new addresses with providers”.

Traditionally, the financial services sector had little incentive to locate ‘gone-away’ clients, meaning firms were accruing fees without providing services

Advisers will want to ensure their clients do not have assets that could be deemed to be dormant, especially now with the expansion of the type of products involved.

Yet, first, they need to trace these assets. It can be time-consuming, so it may make sense to seek the help of a specialist such as The Tracing Group.

Consumer Duty now places greater responsibility on financial firms to ensure any service charged for is being delivered. Effective communication is essential but that cannot be done with inaccurate client location information.

Traditionally, the financial services sector had little incentive to locate ‘gone-away’ clients, meaning firms were accruing fees without providing services. This changes with the introduction of the Duty.

Since the maturity of child trust funds in September 2020, over £1bn remains unclaimed by young adults. Could that be the beginning of a nest egg found with your assistance?

This change is supported by the expansion of the DAS, with providers now incentivised to track down their clients and penalised for non-compliance.

One of the key incentives for providers to use the DAS is the transfer of liability to RFL. Penalties running into tens of millions of pounds have been levied on organisations failing to deal with gone-aways fairly.

Advisers and networks can sometimes be in receipt of small amounts of fees accruing from older products and former clients and that could also be scrutinised, particularly if the clients are gone-aways, making it difficult to demonstrate a service is being provided by the adviser,

While it clearly makes sense to ensure you haven’t got any gone-away clients, we would stress the positive benefits of assisting such clients and their families.

For example, since the maturity of child trust funds in September 2020, over £1bn remains unclaimed by young adults. Could that be the beginning of a nest egg found with your assistance?

There are several free services that can assist clients in checking for “forgotten” assets:

1. The CTF Register by TTG and the Share Foundation
2. The Pension Tracing Service
3. Capita, Computershare and Equiniti’s free share checking services
4. Lost bank accounts and premium bonds via Mylostaccount

Should clients or advisers on their behalf discover a lost product after the account has been classified as dormant and the funds transferred to RFL, the money can still be claimed from the original provider, with RFL reimbursing the provider.

Stuart Erskine is a director at Flat Mountain Consultancy