A platform for debate

The FSA has published a number of RDR-related documents on platforms over recent years with the latest paper in the consultation process being released in late June.

As the consultation process has progressed I have been consistent in my stance that the FSA’s key proposals will not benefit the majority of consumers. I do not doubt that the starting position of the FSA in respect of this consultation was sound, unfortunately this does not reduce my disappointment with some of the outcomes.

Summing up

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So what did the consultation paper say? This will come as no surprise to those who have been following the various consultations:

• From 31 December 2013 neither advised nor non-advised platforms will be able to accept payments from product providers. Although not confirmed in the consultation paper I understand that this will not apply to legacy business.

• From the same date, cash rebates payable resulting from the sale of products to advised clients will also not be allowed. The FSA will look at whether this ban should be extended to the non-advised platform market with a starting position that it will. Again, legacy business will be exempt from the ban.

• Somewhat controversially, unit rebates will not be banned. It will be interesting to see how different platforms interpret the unit rebate rules.

• Finally, the FSA also intends to look at whether and how these rules will be applied in what it refers to as ‘adjacent markets’. This is perhaps the only area where we may see significant change in the remainder of the consultation.

The latest consultation paper was a little unusual. Previous papers have set out a case for and against each proposal and then confirmed the FSA’s preferred position. On this occasion more than 300 pages of independent research accompanied the consultation. It felt at times as though this was a restating of the FSA’s preferred position with the findings from the research used, though on a few occasions either stretched or ignored, to support their stance.

Greasy palms

It is worth confirming at this stage that I am agnostic on the matter from a business perspective. AJ Bell operates both a bundled and unbundled charging structure, accommodating investments where it receives a payment and those where it does not.

The FSA’s concern with payments from product providers to platforms is based on a perception that fund groups grease the palms of platform operators in return for increased marketing exposure. This starting point concerns me for two reasons.

Firstly, platforms have driven fund groups’ charges lower. The FSA’s proposals will reduce, if not remove, the incentive for many platforms to drive these costs down in future.

Secondly, I believe the proposal is an insult to the integrity of advisers, who should have robust processes for determining which investments they recommend and will filter marketing noise coming from a platform. The FSA can prohibit ‘shelf space’ agreements and other methods through which product bias can be achieved by indicating that it expects independent advisers to use platforms offering a full range of investments. In a congested platform market, what advisers want they get; if advisers tell platforms they do not want promotion of investments, it will not happen.