A rebate is a rebate
The FSA is looking to prevent platforms in both the advised and non-advised market from being funded by product providers and is seeking industry views.
For those of you that Tweet, you may have seen views on the FSA’s latest platform paper, CP 12/12, from places as far afield as Edinburgh and Southampton - vastly different opinions that might as well emanate from Venus and Mars.
Before looking at the paper, it is worth reminding ourselves what platforms do for advisers and their clients, because we sometimes forget: aggregation, reporting, analysis, benchmarking, custody, on-line trading, valuations, cheap tax wrappers, rebalancing, CGT calculation, asset allocation and fund selection tools and much more.
The adviser could not offer a proposition of anything like the quality he can today without a platform.
• Valuations took days and were always out of date when received by the client and were very expensive to produce.
• Reviews that took many hours of preparation are now available at the press of a button.
• It is now possible to run sophisticated models at very low cost.
• The adviser can benchmark portfolios against cashflow analysis output (or any index required).
Not only would much of this be impossible, the cost would be too high to pay. The client is getting far better quality of advice for about 35 baisis points. Just a few short years ago, when far more was being invested in life company bonds than in funds, nobody talked about basis points – why? Because no one measured charges in such small units, if they measured them at all.
The City regulator’s record here is a little patchy. We had three platform papers offering three solutions. The pile on my desk is now some 10 cms thick. At least this one does not contradict previous papers, but is still only a consultation paper. Platforms are absolutely key to the RDR, so it is a shame that 2014 is the earliest date we will see new regulation. In fact, in view of the nature of the rule changes, January 2014 is optimistic.
In a nutshell, CP 12/12 (titled Payments to Platform Service Providers and Cash Rebates from Providers to Consumers) tells us that rebates to platforms and cash rebates to customers will be banned and the ban will apply to non-advised platforms too. This is probably the best that could be hoped for and is broadly good for customers.
Graham Bentley, head of proposition for Skandia, agreed: “Today’s decision by the FSA is a victory for good customer outcomes over industry self-interest.”
Then comes the little dig at wrap: “Customers use platforms to invest in funds, not cash, so it is logical that any discount that the platform can negotiate for the customer should be paid into their funds rather than a cash account.”
David Ferguson, chief executive of Nucleus makes his points succinctly: “Great to see FSA’s undiminished commitment to breakdown collusion between asset managers and platforms can now move on towards greater transparency and better client outcomes.”
- The case for rebates
- Aegon calls for FSA rethink on rebates
- Two out of three IFAs unconvinced about RDR: poll