FSA plays down RDR platform bias fears
The FSA has said investors are unlikely to be hit with a ‘platform bias’ towards key funds after most of the RDR is implemented at the start of 2013 – although the UK’s two biggest fund managers are still bundling rebates for investment platforms into RDR-ready fund shares
Most fund managers are rolling out RDR-ready fund share classes that are completely unbundled – including no rebates either for advisers or platforms – ahead of the beginning of next year. The RDR bans product providers from paying advisers rebates or commission.
But Invesco Perpetual and M&G Investments are offering RDR-ready shares which offer no adviser commission but continue to offer rebates – of roughly 0.25 per cent of assets a year – to platforms. Platforms would collect these rebates instead of charging investors 0.25 per cent a year to invest in the funds.
The FSA late last month formally proposed a ban on all payments from fund providers to platforms, starting January 1 2014, but under provisions for legacy assets – in other words, business struck before 2014 – the platforms will be able to receive ongoing rebates on business sold before that date. It is expected to make a final ruling on the matter later this year.
Platforms may be encouraged to highlight funds with share classes that contain platform rebates over those that do not, to gather rebate-paying assets in the run up to the proposed 2014 ban.
An FSA spokesperson said that the regulator does not view this as a “particular problem” - even though the FSA has already banned rebates for advisers.
“Ultimately both the adviser and the client are incentivised to pick the best and lowest cost option.
“There are already some incentives for platforms to prioritise [one fund over another]. Until our rules come in there is not much we can do,” the spokesperson said.
The spokesperson added that fund shares with lower annual charges – which could be achieved by excluding rebates –would also be beneficial to managers, as higher costs can make performance data appear worse.
M&G Investments is launching both fully unbundled share classes and semi-unbundled classes, which include a platform rebate.
Managing director Jonathan Willcocks said the semi-unbundled shares had “no commercial advantage” as platforms were still working through ways of charging clients directly, rather than prioritising shares with rebates bundled in.
“By putting both share classes on platforms we are giving platforms the choice rather than pushing one,” he said.
Invesco Perpetual said: “Invesco Perpetual will of course have funds in the format required to meet regulatory requirements.”