RegulationMay 2 2013

City regulator sounds death knell for cash rebates on platforms

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ByKevin White

The head of investment policy for the FCA said the long-awaited ban would allow clients to understand the costs involved when investing through platforms, and congratulated the “proactive nature” of many providers who have already introduced clean and super-clean share classes.

Instead of rebates, a platform service charge that has been agreed with the investor will need to be disclosed. However clients will still be able to receive minimal cash rebates of £1 or less per unit.

The regulator’s 38-page policy statement, Payments to Platform Service Providers and Cash Rebates From Providers to Consumers, confirmed that the ban on rebates for new business would come into force in April 2014.

A further ban on legacy business coming into force following a two-year ‘sunset clause’ will expire in April 2016.

Mr Geale said the regulator would be concerned if firms did not start making plans to convert to clean share classes before 2016.

He added: “We considered a further two years to be a reasonable time frame for the industry, but we wouldn’t expect them to wait until that point.”

The paper said current rebate practices made it difficult to compare prices and products available on different platforms, with a risk that the payments could lead to product bias.

The ban follows HM Revenue & Custom’s announcement in March that it would start levying income tax on platform rebates, prompting commentators to suggest it would signify a “natural death” for rebates.

Key points from paper

• The cost of the platform service will be clear to investors.

• The platform service is paid for by a platform charge, disclosed to and agreed by the investor.

• Rebates will still be able to be passed to clients in the form of units.

• The FCA is banning cash rebates for non-advised platforms to prevent the payments being used to disguise the costs of the platform charge.

• The ban will apply to rebates on new business from April 2014.

• It will be extended to legacy business from April 2016

• The FCA will consult on rolling out the rebate ban further to Sipp providers, life companies and discretionary fund managers

Adviser view

Michael Holden, group chief executive of Cheshire-based Lift Financial, said: “Fund managers, platforms and advisers need to do some serious navel-gazing to see who does what and what adds value for the client.

“The good news is the ban on cash rebates and platforms having to make an explicit platform charge. The bad news is the unit rebate and marketing allowances continue so there will still be conflicts of interest and all that nasty under the table stuff.”


Currently investment managers pay a rebate to some platforms to have their products included on a platform. The rebate comes from the annual management charge which is paid by the investor to the fund manager.

As a result some platforms give the impression that they are offering a free service, which means that the investor may not understand the true cost of the service provided by the platform.

The FCA was concerned that this could make it difficult for investors to compare prices and products available on different platforms. There was also a risk that the payments could lead to product bias in the investment market.