So we made it to the end of the first quarter in the new RDR world. There were predictions of Armageddon but it didn’t happen.
Somehow the provider, platform and adviser communities managed to make it through without any massive failures – well, none that we know of yet anyway.
But the most recent debate about rebates has been extraordinary. Only weeks ago we expected, unfortunately and perversely, that cash rebates would be banned and unit rebates allowed. Then it leaked that de minimis cash rebates up to £1 might be considered. And then the real shocker that HM Revenue & Customs had examined the position of rebates and concluded they should always have been taxed.
Be thankful for small mercies – past liabilities will be forgiven and it only applies to assets in the general investment account – not to tax advantaged Isa and pension accounts. All the same, platforms (or whomever has the agreement with the client) will have to deduct tax from all rebates paid to customers now – yes from the beginning of the new fiscal year. All platforms are examining customer terms and conditions to see how it can be done and with what notice. This is yet another challenge to our industry, the consequences of which will be significant and some as yet unknown.
Firstly, there is the difficulty in raising the tax at such short notice. Then perhaps even more challenging is the inevitable consequential demand for new clean share classes. This is not trivial stuff. Fund administrators and most platforms are just not geared up yet for conversions from old retail to new clean share classes in bulk. The new and as yet barely tested world of automated re-registration does not allow for share class conversions.
Reconciliation issues and work will increase in proportion to the number of new share classes. And none of this extra work creates any value for any party – just higher administrative costs.
Interestingly the debate about unit rebates now becomes largely academic. Ultimately no client or adviser will wish to pay tax on any rebate in cash or unit form. There remains the challenge of how pressure can be applied to the strangely robust fund annual management charge (AMC). De minimis cash rebates mooted at £1 per client holding per month would help. The alternative is too terrible to contemplate and what I have feared all along – multiple share classes. The outcome of this would be re-registration hell, client confusion and added costs all round for no benefit whatsoever to anyone (fund administrators possibly excluded).
The ideal outcome would be a standard, lower and reducing, clean share class AMC for all platforms – with marginal discounting in cash form via the de minimis route.
When we at Ascentric started this in launching the platform in 2007 we, like some other platforms, were driven, partly at least, by a desire to improve the long-term savings industry and the lot of the poorly served consumer.
We always knew that it wouldn’t be easy. What we did expect was some support from several interested parties, the regulator and the Treasury among them. In retrospect I now have to concede that that was a bit naïve.
Hugo Thorman is chief executive at Ascentric
