Key questions are left unanswered by FSA paper
Platforms seem to have two key questions remaining with regard to the FSA paper on platform cash rebates.
The content of the long-awaited FSA paper “Payments to platform service providers and cash rebates from providers to consumers” contains no real surprises.
The timing and contents of this CP12/12 paper –which concerns the payment of fund rebates in the case of platforms – are more or less as expected. (In particular, the FSA is sticking by its proposal to ban paying the ultimate rebates in cash as opposed to fund units.)
In their responses to the paper, however, platforms seem to have two key questions:
- Will your business model need to change as a result of the paper?
- Will you administer rebates in the form of fund units after the RDR?
Work involved to implement unit rebates falls on platforms, not fund managers, and therefore the decision to offer unit rebates probably lies with them
The answer to the first of these from a Novia perspective is a resounding no. The paper provides no challenges to how the Novia business is structured.
We will continue to operate as we currently do. Our cash facility will still provide the hub through which users buy and sell assets. Novia operates a transparent model, and all of our income is paid direct by the client. We do not depend on rebates paid by funds, be they in cash or units.
The RDR becomes reality on January 1 2013. Novia has a minimal amount of work to become RDR-ready, which we will be well in advance of this date.
The answer to the unit rebates question is not as straightforward. We do not see anything terribly wrong with cash rebates as long as they are passed on 100 per cent to the client, so it is not a question of bias or conflict of interest, and we did not see any burning need for them to be abolished. On the other hand, we do not see the banning of cash rebates being a huge issue either, although some of our competitors seem to.
All the feedback from fund managers would indicate that they are not interested in paying rebates in units. However, the one surprise in the paper concerns how it is proposed that fund unit rebates are paid.
A proposed new FSA handbook rule states that fund managers will achieve this by paying cash to the platform, which will pass this cash on to the client through units.
The net effect of this is that the work involved to implement unit rebates falls on platforms, not the fund managers, and therefore the decision on whether to offer unit rebates probably lies with the platforms.
We at Novia will wait to see the final rules and the way the market is likely to move before we decide on whether we work with unit rebates or not, but whichever way the rules go, the change to permit unit rebates represents a minor alteration to our systems. CP 12/12 is the final consultation paper on the question of platform rebates and we would expect to see what is contained in the paper pass into the FSA’s rulebook.