Head to head: Should the FSA extend its platform ban to life wrappers?
First, platforms and life wrappers are historically different. It is entirely inaccurate to consider an insured life and pension product as a wrapper in the same way as an Isa or general investment account on a platform.
An Isa account is a true wrapper because the client is buying a product that cannot pay a rebate. With a life and pension wrapper, there is an actual defined product that is constructed by the provider.
In this instance, the client never buys an underlying asset, they have a policy contract with us and we buy the assets. Also, these assets are not available elsewhere in the market because they are insured funds constructed by the provider. This means that any comparison between platforms and “wrappers” is inaccurate in the first place.
If the regulator did ban rebates on life wrappers, there would be a minefield of unintended consequences
This sounds very technical but it has far-reaching outcomes. When providers create these funds, they also invest them in other funds. If the FSA did ban rebates on life wrappers, they would also be looking at banning rebates in the multi-manager mar-ket, and the discretionary fund manager space. There would be a minefield of unintended consequences.
As regards the argument of banning rebates on life wrappers to make life easier for IFAs when comparing products, this is only looking at half the market through one lens.
Platforms and products can both be destinations for client assets. However, at the end of the day the role of an adviser is to pick the vehicle that delivers the right solution for the client. This is often defined by the tax treatment of the assets. For example, if the right tax treatment for a client is the tax treatment you get with an Isa, it will clearly not compete with a bond.
I see the competition as being between our bond or pension and someone else’s bond or pension. It should never be between an Isa or a general investment account and a bond because that means we are not competing on bases that are in the client’s best interest.
Continuing to allow life wrappers to pay rebates does not mean it will be harder for IFAs to compare client solutions. Stopping products cross-subsidising other services in the value chain through the banning of commission will make product comparison easier, interfering in how products themselves are structured will not.
From the moment the FSA released its paper informing us that rebates would be banned for wrap clients but not life companies and fund supermarkets, I have been very confused and slightly concerned. Confused as to why the rules were not the same across the board and concerned that the already uneven playing field would be pushed even further off kilter.
My main worry is that the market will be pushed further towards the opaque structure that we have been campaigning so hard for years to get away from. I have been very vocal in my belief that the industry needs much greater transparency something that is arguably lacking at present.
It is this sort of behaviour and opaqueness that has resulted in the industry eroding the confidence of consumers. There is a significant amount of positive change that is required if the industry is to stand any chance of building the kind of trust it needs to. In my opinion, much of that trust will be founded on the kind of transparency that will give consumers confidence the current situation of dirty margins and kickbacks is well and truly a thing of the past.
While the FSA has made no comment on whether or not these rules will be changed, I fully agree with Martin when he says the regulator will inevitably extend the ban to life wrappers. I have every confidence that it will realise that in the run-up to the RDR, in an age of transparency and fairness, having one rule for one and a different rule for the other is simply not acceptable.