The investment industry has largely applauded the U-turn by the Financial Services Authority (FSA) last week on rebates between fund managers and platforms.
While the FSA’s initial discussion paper on platform reforms mooted an outright ban on rebates, the second platform consultation called simply for improved disclosure of payments.
In the document the FSA said: “If we were to ban payments by fund managers to platforms while excluding others, such as life companies, from the ban, this could create bias towards firms that deal with fund manager as principal. These fall outside the commission ban of the retail distribution review (RDR) and would therefore be able to continue to receive payments from the fund manager.” (article continues below)
This U-turn has cooled fund groups’ fears that they would have to introduce share classes to accommodate arrangements with different platforms.
Instead, the FSA has ruled that providers cannot offer cash rebates from product fees if it would “offset or appear to offset” an adviser charge. This is to prevent rebates replacing commission as a way for product providers to influence adviser behaviour.
Many in the platform industry have queried this statement and asked for evidence, saying that they have never heard of this practice.
Overall, the proposals force platforms to make clear the income they receive from product providers.
Gary Shaughnessy, the British managing director at Fidelity, says disclosure is the best way to achieve transparency, rather than regulating which pricing models should exist.
Shaughnessy adds that an outright ban on rebates would have been a “retrograde step” that might have caused difficulties for consumers.
Skandia says the relaxation on rebates will benefit customers that use platforms on a large scale and are able to agree competitive prices.
Peter Mann, the chief executive for Scandia in Britain, says the new guidance is bad news for those who assumed that charging structures were RDR ready. He adds that providers who pass rebates back to client cash accounts will have to change how they operate.
According to Mann, the changes are potentially costly and may put pressure on platforms’ commercial models.