Relaxing the cash rebate ban to allow de minimis payments of up to £1 - as FTAdviser reported earlier today the regulator is considering - would cause more trouble than it saves and create confusion for consumers, platform providers have argued.
Earlier today it emerged the Financial Services Authority may be considering relaxing the ban to allow de minimis payments, as a result of lobbying from some platforms and trade bodies including the Tax Incentivised Savings Association and Cofunds.
In response to an FSA consultation paper published last year, Tisa called for cash rebates to be allowed for up to £10 per portfolio.
However, proposals understood to be under FSA consideration would allow cash rebates of up to £1 per holding, which could add up to a significantly greater sum.
However, other members of the platform market have told FTAdviser such a concession would be more trouble than it was worth.
Hugo Thorman, managing director of Ascentric, said transactions of less than £1 make up about a quarter of the company’s rebates.
He said: “So it’s apparently helpful but in fact it’s probably not, because the funds would still mean you having to buy units for some clients - so it won’t ever apply to a complete rebate.
“It isn’t any more efficient than doing the whole lot. I’m not sure whether that option will be utilised. Clearly it’s easier to buy cash than units but you will have to buy units anyway. It just creates more work.”
“It’s a mix of a very good system and a poor system, but it’s better to use the poor system for all of it.”
Stephen Cameron, head of regulatory strategy for Aegon, said: “We are a little bit puzzled as to why any platform would want to operate a dual approach.
“More importantly, think of the confusion that this will create for customers. I think we see the direction of travel in the longer term to be towards clean share classes, which avoids this entirely.”
Bill Vasilieff, chief executive officer of Novia, said: “Disasters don’t happen in one step, they happen in a series of steps. This started out as well-meaning but with all the lobbying that’s going on we’re just ending up with an absolute mess.
“It’s such a complete mess that the end investor hasn’t got a hope to understand.”
Mr Vasilieff, who has previously argued for a blanket ban on rebates, added that every IFA he has spoken to says they would prefer clean share classes.
Speaking in favour of the potential concession, Peter Mann, UK managing director for Skandia, said: “Whilst I believe unit rebates are in the client’s best interests, this cash rebate position on a de minimis basis seems pragmatic based on the small amounts.”
Fidelity declined to comment.
