InvestmentsMay 7 2013

Discretionary firms back rebate ban extension

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ByMatthew Jeynes

Fee-based discretionary managers have given support to plans for a ban on kick-backs from fund managers, after the UK’s financial regulators continued their war on rebates in their recent platform policy paper.

The FCA, which recently took over provider regulation from the FSA, issued an explicit warning that discretionary managers will be banned from being remunerated by fund managers, in the paper released late last month.

The paper extended the FSA’s ban on financial advisers receiving rebated ‘commission’ payments from fund managers, which came into force at the end of 2012, to platforms. They will be forbidden from being paid by fund managers – who fund all rebates from the client charges they receive – on new business from April 2014 and on legacy business from April 2016.

The regulator also stepped up previous warnings that a ban on execution-only brokers, life companies and discretionary managers receiving rebates from fund managers would make sense.

“We will also consider other retail markets where rebates can still be paid from one party to another, for example discretionary fund managers, and consider whether we should read similar rules across to avoid the potential for bias,” said the paper.

Frank McGarry, director of business development and marketing at Psigma Investment Management, said he did not expect such a clampdown to have a major impact on wealth and discretionary managers.

He said the FCA was “trying to crack down on these clever workarounds that some firms are doing to maintain the old world”.

He said: “You would hope that things would level out naturally. Those wealth managers who are taking 1.5 per cent on legacy business compared to 0.75 per cent for their peers, their total expense ratios will be much more expensive. What will happen there is that competitive forces will drive that down.”

Mr McGarry said that Psigma does most of its business through institutional share classes, and had long had a preference for doing so, meaning it was not worried by further pressure from the FCA.

“The wider the FCA casts its net the better it gets for the industry. You need total transparency in these things,” he said.

Paul Chavasse, head of investment management at Rathbones, said he welcomed further attempts by the FCA to promote transparency in the industry.

“There are ways for the discretionary industry to get quite a lot of kickbacks, with two ways in particular that are exempt,” he said.

He said that discretionary managers could also still be taking full trail commission-paying share classes and pocketing the commission.