As is customary when the Financial Conduct Authority confirms rules that have been largely trailed in the lead up to policy publication, the release of final platform rules today (26 April) has been “welcomed” by the major wrap and platform firms.
Most comments highlighted that despite the swathe of headlines following the paper’s release, there were no big surprises. They’re right, of course: the FCA held firm on allowing unit rebates in spite of the recent HMRC income tax ruling and confirmed the worst kept secret in the industry that it would allow de minimis cash rebates of less than £1 per unit.
However, the confirmation of a so-called ‘sunset clause’ that will require the end of legacy rebates by 2016 caught the eye of many, while hints that the ban would be extended to other markets including discretionary managers and self-invested pensions also garnered attention.
Here we summarise the sector’s reaction to the key tenets of the proposals.
Cash/unit rebates
Ed Dymott, head of commercial at Fidelity Worldwide Investment, described today’s FCA platform paper as “a turning point” as it will affect all platform businesses and the “outcomes will change the market landscape”.
Mr Dymott said in particular that the decision to allow unit rebates will provide flexibility for platforms, but that this will “quickly become redundant” following the recent HMRC decision to tax rebates as income and the subsequent declarations that many operators will move to alternatives such as ‘superclean’ shares.
Bill Vasilieff, Novia chief executive, said he also agrees with the FCA’s move to ban cash rebates but shares the view that allowing unit rebates and de minimis payments is “largely a red herring”, following HMRC’s announcement that rebates will be taxed as income.
He said: “The FCA decision to allow unit rebates, will provide some flexibility for platforms, and allow another mechanism for consumers to receive better outcomes. We are also pleased the FCA listened to the need for a de-minimis.
“That said, following the HMRC recent rulings on rebates, we do feel that this model will quickly become redundant.”
David Tiller (pictured), head of platform propositions at Standard Life, said many major platforms had already begun the move away from rebates following the HMRC ruling and proclaimed the use of ‘superclean’ shares as a transparent method to facilitate bigger operators’ buying-power discounts.
He said: “We’re now starting a full transition to clean share classes. We also support the creation of super-clean share classes which removes the need for a rebate and any subsequent tax liability.
“At the same time it eliminates the complexity rebates create and customers to clearly see any price advantage of dealing with a scale provider.”
For its part, the FCA seemed to give backing to superclean, with Christopher Woolard, director of policy, risk and research, saying the regulator has been “encouraged to see signs that the market has already started to move to products which have transparent charging structure.”
Sunset clause
Mr Dymott said of the sunset clause ending legacy rebates within three years that this is a “sensible approach”, but questioned why providers would necessarily need to wait until 2016 to make the required changes.
He said: “We were well aware of the proposed sunset clause and we feel it is a sensible approach to transitioning customers to the new rules.
“The two year period gives platforms an ability to manage this process as efficiently as possible, although there is no reason why a platform should wait until 2016.
“Our one concern is around what this means for the advisory market, as it is likely they will need to transition in line with this process.”
Mr Vasilieff added that the plans would have the biggest effect on larger platform “fund supermarkets”.
He said: “The banning of rebates on legacy business however will have a huge financial impact on the big fund supermarkets who operated a bundled pricing structure and it will be interesting to see how they manage without this income stream.”
Extending the ban
Ian Gorham, chief executive at Hargreaves Lansdown, supported the proposal that the ban on payments could be applied beyond platforms to discretionary managers, execution-only brokers, Sipps firms and insurance companies, which the FCA would be the subject of further consultation.
He said: “There must be a level playing field and extending rules to Life Insurance companies and other markets is a necessary next step.
“Although Sipp operators are technically excluded, it is our current intention to apply our new plans to include our Sipp business. This will be cleaner, future proof and in the spirit of what the FCA is seeking to achieve.
“As we are confident in our plans there is no reason not to apply them across our business.”
Mr Dymott also welcomed the move, saying this would create consistency across markets.
He said: “The proposed consultation will be good for consumers and will reduce the risk for confusion and any market distortion. For too long the debate has just been around platforms, when in reality the same approach should be applied to all providers of long term savings.”
