The main focus of the FCA’s policy statement on new platform remuneration and cash rebate rules is designed to ensure that charges are clear and explicit so that investors using platforms can quite rightly make informed choices. The FCA’s strong stance on this is perhaps not surprising bearing in mind the recent introduction of the RDR.
Key highlights of the policy statement on platforms coming into effect on 6 April next year include the banning of cash rebates to customers for new business, although taxable de minimis payments of £1 can be made. Also a cash rebate from a fund manager can still be made, so long as this is rebated back to the client in the form of units and subject to a tax charge.
Fund rebates retained by platforms will be banned for new business.
The FCA has also amended the definition of a ‘platform’ to include firms that white-label a platform or provide custody services. In addition, the FCA has clarified that all rules will apply to both advised and non-advised platforms, and is currently considering whether to extend the rules to life companies and Sipp providers.
To its credit, the FCA has acknowledged that it would be difficult and costly for legacy assets to comply with the new charging rules in the 12-month time frame. So, in order to facilitate this transition, the FCA has included a ‘sunset’ clause giving legacy businesses up until 6 April 2016 to comply with the ban on retained rebates. After which time platforms will have to charge both new and existing customers. However, while this element of the FCA’s policy statement has been given the thumbs up by the industry, other policies have not been welcomed with such open arms. For instance, there have been concerns that not banning payments between fund managers and platforms to advertise may influence how such funds are promoted, despite FCA guidance against this.
Furthermore, the current introduction of a clean share class to accommodate the new unbundled charging models has been criticised for being potentially costlier to the end user than the old or ‘dirty’ share class. The introduction of an even lower-priced ‘super clean’ share class that helps maintain agreed commercial pricing advantages is adding to the list of concerns that suggests the FCA’s objectives on pricing transparency may not be as clear cut as originally thought, as players scrabble around to readjust their business models.
So where is all this leading in terms of platform use in the UK? Well, according to a recent report by Deloitte, the value of assets held on platforms is estimated to grow from about £200bn today to £600bn by 2018, which, if correct, bodes well for the health of the sector. Deloitte says this growth will be driven by continued demand from advisers who see platforms as an essential part of their RDR-compliant, fee-based business models. Indeed, we have already seen signs of growth in platform use in a post-RDR market environment.
Yet while the debate on pricing and share classes will continue to focus minds as advisers and providers look for sustainable business models, I believe further growth in platform use will also be guided by the quality of product offerings.