The Financial Conduct Authority published policy statement 13/1 a few weeks ago and it was a disturbing paper in lots of ways. It disturbed the development schedules of lots of platforms, and it certainly disturbed a lot of finance directors whose world from 2016 just went a deeper shade of red than it already was.
The statement, Payments to Platform Service Providers and Cash Rebates from Providers to Consumers, also disturbed customers – those poor fools putting their money and their trust in us all – who will have to get used to a new way of paying for advice on past business as well as new.
But this is a paper for financial advisers – the clue is in the title – and PS13/1 disturbed you perhaps more than anyone as it reached into the heart of your businesses and gave it a good old poke. And this is our subject for today.
We shall start by taking a look at some specific challenges linked to the statement itself.
First, we have the switching off of all trail commission from 6 April 2016. Not a complete surprise, perhaps, but combined with the fact that doing just about anything with a customer’s portfolio from 6 April 2014 will force the switching off of trail anyway (excepting auto-rebalancing arrangements set up before 6 April 2014), this adds serious impetus to the business transformation plans of anyone making the transition from commission to adviser charging. Get that deadline on your white boards now. And also bear in mind this clear statement of intent from the FCA (see p.16 of PS13/1): “We do not expect firms to wait until 6 April 2016 to move all customers with legacy assets to the new charging structure. We would expect most customers to have been moved to an explicit charging model before then.”
You have been warned.
Second, we indeed saw the well-trailed banning of cash rebates unless they fall below a de-minimis limit of £1 a month (because we know how kerr-azy customers can go with rebates of £1.01). Along with HM Revenue & Custom’s decision to tax rebates of any kind outside a tax-wrapper, this is the final and quite deliberate slam of the door on using negotiated refunds of charges already paid to fund cash accounts that can be used to pay platform or adviser charges or anything else. From the FCA’s point of view that is the whole point really. So it will be a sell-down or a reach into the pocket. Those are your choices.
Perhaps this is less of a challenge in practice if fund costs come down and you demonstrably add value, but there may still be customer hearts and minds to win. Any less than 100 per cent clear platform conversations you may have had could come back to haunt about now.
Third, there are a couple of significant due diligence angles. PS13/1 makes it clear that it is now the responsibility of the adviser to satisfy himself that any platform service provider you use is not:
• Receiving any forbidden payments from fund providers under the new conduct of business rules, or
• Encouraging product bias among funds available for investment in how it presents or operates its services and platform tools.
These add to some already quite complex risk management and commercial considerations around platform use. Making sure your independence is not compromised. Making sure you properly manage any conflicts of interest between driving efficiencies in your business and meeting the specific, individual needs of each of your clients – we should never forget our old friend the FSA’s faintly damning findings on replacement business and centralised investment propositions (see guidance consultation and finalised guidance 12/16 if you do need a reminder). Making sure your advisers have the right skills and competence to work with a platform-based proposition. Making sure your business could survive a major systems outage (or worse, the complete failure of) a platform provider.
I could go on. The point is that writing business through platforms – and in the post-retail distribution review world in general – is not a soft option. Think of it as a serious commitment with serious implications for your business. Only genuine professionals need apply. It involves the types of disciplines and thought processes that are essential if we are to cement the emerging perception of financial advisers as trusted partners who provide value-added services for the financially astute consumer and are demonstrably worth paying for.
I think most of us in the trade would agree that the tipping point has long been reached for most adviser businesses of decent size and with plans to stick around, that platforms are where it is, as Beck once told us, at. They offer huge scope as a basis for developing more compelling client propositions and improving the consistency and efficiency of performance from both the client and business point of view.
PS13/1 is another landmark in the long journey of transformation for our industry. But this is a journey on which advisers carry an increasingly heavy burden. At the risk of preaching to the converted, you have to want it. The signs are all there. Only the serious will survive. Time to get real. Speak to your platform(s), speak to the people who help you with due diligence and compliance and, most importantly, speak to your customers. We all have a lot of work to do.
Mark Polson is principal of the lang cat
