We accept the FSA’s position that platforms are primarily about servicing the end investor. But their activities are not for the sole benefit of the client.
Ignoring this fact means platforms will be forced to carry the burden of costs which, by rights, should be shouldered by the fund managers.
While no one would argue with removing provider bias, setting up and maintaining a provider’s fund range creates significant upfront and ongoing costs to platforms. Many of these costs are non specific, e.g. costs of fund set up where there is no consumer to charge, or dependent on the provider. Providers vary in the level of activity and hence the costs incurred.
We can not ignore the fact that we also provide services to providers which the end investor does not see and has no interest in, services such as deal aggregation, nominee accounting and distribution processing.
Then there is the COLL provision of information and voting requirements due at the end of 2013, which will involve significant costs to platforms. Yet platforms, which could reasonably be expected to passing costs onto end investors, will be prevented from passing on these costs under CP12/12 proposals.
One way or another, end investors will pay but it seems sensible that costs are incurred at the source of the activity – providers.
That is why we have been making the case for encouraging providers to behave appropriately, by ensuring that costs are covered equitably.
Where providers make mistakes these have to be rectified. However, the bulk of the costs will be incurred by the party holding the client record, the platform, not the provider.
Not to be able to recover such costs from the provider is inequitable and does not provide the appropriate incentive to the provider to raise standards.
We are, therefore, comforted that the FSA appears to have accepted this point.
Aside from the recovery of costs incurred as outlined above, we believe there is a key principle at stake and that is that CP12/12 should not prevent genuine provision of services between firms and certainly should not have the unintended consequence of discriminating against firms who act as platform service providers.
The regulator needs to take a sensible look at what functions platforms carry out and then agree how those platforms can be remunerated for it.
We have serious concerns that when acting as a platform services provider, which can only receive income via a consumer fee, platforms will then be prevented from offering services to other firms whether providers or intermediaries.
The bottom line is that if platforms provide services requested by providers they should be paid accordingly. This is an argument that increases in strength in line with the increased economies of scale platforms can bring.
Platforms are in a unique position to drive process efficiencies that benefit the entire value chain. It would be an opportunity missed if we were not able to do so because our hands were tied due to dogmatic regulations that fail to take into account the reality of the situation in this case.
Martin Davis is chief executive at Cofunds