Focus: Platform to the future
Investment platforms may be core to the 'future' of retail investing, but as a topic they are considered rather dry by comparison to the 'sexier' Retail Distribution Review (RDR).
This was evident last month, when the release of the RDR somewhat eclipsed that of the Platform paper, despite the top 14 platform providers holding around £100bn in assets for some 36,000 clients.
In the paper, the FSA acknowledged half of new retail fund business is placed through platforms - highlighting their rising scope in the administration of investments.
The FSA's Platforms: delivering the RDR and other issues for discussion centred around remuneration, easing the transfer of assets between platforms and the level of capital adequacy that should be applied to them.
Unlike the RDR, which is the finalised stage of the new FSA requirements, the platform debate is at discussion paper stage. However, it is clear the FSA prefers that no payments be made by fund houses to platforms - or even to individual clients - if it means fund choice could be biased as a result.
The regulator explains "if payments are simply for supplying administration services, it is unclear why platforms should be treated differently to other third parties who supply such services". However, when extra features, such as modelling tools, are provided, it states there is potential for some funds to be promoted above others. Even if the tools are truly independent, these additional services make active platforms into "a clear part of the distribution chain".
While most platform providers and advisers have accepted the regulator's view on 'kick-back' fees to platforms, they have found it harder to understand the reasoning behind banning rebates that go directly to the end client.
Hugo Thorman, managing director of Ascentric, says: "To me, the argument for that didn't make any sense at all. The argument was that rebates to clients would be confused with adviser charges. We already operate this model, and that has never, ever happened. I know the other platforms I've discussed it with are as surprised as I am, and they equally say there's never been any confusion."
The rebate issue forms part of the paper's broader exploration of platform remuneration, which includes proposals to adjust bundled and unbundled charging to make it clear to each client what they are paying for at every stage. However, Harry Kerr, director of Avalon Investment Services, believes the unbundling of platform charges may not suit all clients - many only want to know how much in total their adviser is being paid.
Mr Thorman agrees clients could be indifferent to a breakdown of headline costs, but says this more often results from a failure to understand conflict issues. He says the FSA's approach will instead help advisers and clients easily ascertain whether they are receiving value for money.
One of the more contentious issues raised by the paper concerns the use of multiple platforms. The FSA has received differing views as to whether it is appropriate for an adviser to use one platform for all clients. As Mr Kerr outlines, many advisers will choose one platform for larger portfolios and another, cheaper option, such as a fund supermarket, for those with smaller savings and therefore very different needs.