No doubt you were, like me, up at five this morning to meet the FCA’s platform paper with open arms and puffy eyes.
Even if you weren’t - and I suspect you may just have waited to get the deluge of news as it landed in your inbox and flooded Twitter - you’ll by now have digested the key points and noted the key changes from and consistencies the previous regulatory orthodoxy.
Here we take a look at five key points for advisers to take away from the paper.
1. Advisers have to pick up FCA slack
The bit of this paper that struck me the most was hidden right in the back past the usual arcane information detailed in the annexes, where the FCA states advisers are responsible for making sure the platforms they do business with are fully compliant.
Yep, that’s right folks you are responsible for policing the platforms and can no longer rely on any assurances they provide. Moreover, given the allowance of advertising payments and the acknowledged lack of clarity as to where the scope of these begin and end, this could become quite a task.
The real question is: why put this onus on advisers in any case? Advisers should be able to rest easy, confident that the FCA is monitoring platforms and that any assertions made are therefore able to be trusted.
Advisers will be asking what kind of due diligence this is going to involve - and what other responsibilities the regulator might decide to land them with in the already arduous post-Retail Distribution Review world.
2. Advertising is a minefield
Picking up this advertising theme, there is a definitive lack of clarity where the FCA talks about such payments. While it says it will allow payments to be made from fund managers to platforms, it stresses a fund manager should not pay a platform to promote its products.
I imagine it goes something like this: if a provider wants to have a box ad on a platform’s website, that’s fine, it will likely not be allowed for a provider to pay to appear, for example, in sponsored search results or lists of recommended funds.
It’s an interesting one, not least because the FCA doesn’t offer any clarity. Platforms who are scrambling to find revenue sources are going to be working hard to trace exactly where the line lies and then test it for weak spots.
Questions will arise about if a given type of ad falls afoul of these regulations, mark my words.
3. The regulator has faith in market forces
It is interesting that the FCA has allowed unit and de minimis rebates to continue even though it plainly think clean share classes are the way forward.
It says that its aim is to remove product provider and platform influence on one product being promoted over another. However, they’ve still allowed unit rebates, saying this will likely not influence this.
However, the regulator is clearly concerned about unit rebates, especially in light of the HMRC ruling. It goes on to say: “Given the tax treatment of rebates as clarified by HMRC, it may be more efficient for fund prices to strip out most or all of the rebate built into fund prices.”
So thank goodness for the HMRC ruling right? That sure takes a load off the FCA’s shoulders now that they can go ahead with the cash rebate as planned and let the taxman do the rest to stamp out rebates altogether.
You only have to glance at the headlines of the last two weeks to see that it’s working. Platforms are fleeing to clean share classes like football fans from the stands five minutes before the end of the match in which their team is losing.
4. Other sectors will follow
Now that it has finally pushed through the Retail Distribution Review, made the switch to twin peaks and issued its long-awaited and game-changing platform paper, the FCA’s trigger finger is getting itchy.
You can be certain there were a few expletives muttered when the industry got to the part where the regulator says it sees “a strong argument” for applying these same rules to neighbouring markets such as self-invested personal pensions, execution-only brokers and discretionary managers.
At least it did the considerate thing and gave us a heads up that it has these “adjacent” markets in its sights. A regulator’s work is never done.
5. All change in two years
Giving us a two-year grace period on top of the one-year deadline to bring legacy business up to contemporary standards may seem generous, but it’s a very tight deadline for dismantling the business model of an entire industry and building it up again from the foundations.
This is going to be the source of deep-rooted change in the market, considering how some of the bigger players already rely so much on legacy rebates for revenue.
