The big RDR platform shake up

It may have caused a stir in the retail finance sector, but the FSA’s proposed new RDR rules for investment platforms have been many years in the making.

If you consider that platforms have been around in the UK for more than a decade, it is all the more surprising that the changes proposed would be the first of their kind – particularly their core demand that platforms operate more transparently.

But with more than £191.5bn of investors’ money sitting across some 28 platforms, the need for transparency in the sector has never been greater.

The last consultation paper in August 2011 said that advisers would need to assess a client’s requirements and be able to clearly justify why they feel that a platform is required.

At the time, it said: “If being on the platform gives the client a materially worse outcome than being off it, (for example, the costs are significantly higher on the platform), the adviser should clearly not be recommending using a platform for that client.

“We expect an independent adviser to be able to demonstrate why using a particular platform is suitable for an individual client.”

In the regulator’s latest consultation paper, CP12/12, it also cleared up the confusion surrounding rebates and commission payments. The paper proposed a ban on all payments from fund providers to platforms, starting on January 1 2014, but with additional provisions for business struck before that date.

“The way in which the consumer currently pays for the platform service hinders transparency and has the potential to negatively affect competition in the market,” the paper said.

Units, not cash

Instead of giving platforms rebates in cash, the FSA proposed investment providers should offer rebates in units. Essentially, this means that in the proposed post-RDR world, where financial firms must state their charges separately, fund manager rebates cannot be retained by platforms, but must be passed on for customers’ use in the form of additional units.

Some members of the industry have welcomed this, with many saying that it is an essential and key step towards a transparent investment landscape, and one that will enable investors to accurately assess the value of the service they are receiving. However, some smaller platforms and wraps that could be said to have weaker negotiating positions have been particularly vocal in their support for share classes that don’t offer any rebates.

This is because while the aim of the regulation to create a level, fair, transparent playing field, questions have been raised over smaller platforms’ adequacy to deal with the new charging structure.

While many of the smaller names first insisted that adapting their systems for unit rebates would not be an issue, the Tax Incentivised Savings Association (Tisa) has now said that some of its members have raised concerns about how long it will take them to update their systems so they can facilitate RDR-style rebates from funds.