FSA U-turn on bundled platform charging

The FSA has climbed down from its original proposal to ban rebates between fund managers and platforms and instead has called for ‘improved disclosure’ of the payments to clients.

The U-turn from the FSA follows heavy lobbying from the UK Platform Group, whose members include Cofunds, Fidelity FundsNetwork and Skandia.

But the FSA has ruled that providers cannot provide a cash rebate from their product charges to consumers if it would offset or appear to offset an adviser charge.

The proposal only prevents cash rebates, so fund managers will still be allowed to rebate part of their fund charges to customers in the form of additional units.

In its long-awaited consultation paper published today the FSA says: “We have been particularly concerned that if we were to ban payments by fund managers to platforms while excluding others, such as life companies from a ban on receiving such payments this could create bias in the market towards financial services firms which deal with fund manager as principal, fall outside the commission ban of the RDR and would, therefore, be able to continue to receive payments from the fund manager.”

On the banning of cash rebates the FSA says: “We have included rules to clarify that product providers cannot provide a cash rebate from their product charges to consumers if it would offset or appear to offset an adviser charge.

“This is to prevent such rebates from undermining the objective of adviser charging – put forward in the RDR – by effectively replacing commission as a way for product providers to influence adviser behaviour.

“We felt there was a risk that some advisers may prefer to use products with large rebates to fund the payment of their charge and possibly represent their adviser charges as paid for by product providers.”

The FSA says allowing providers to continue to include commission in their product charges and rebating it to the consumer in cash could potentially maintain bias in the market.

There was also concerns that consumers would be confused between product charges and adviser charges if cash rebates continued.

The regulator says it felt that providers should reduce product charges in time for the RDR rather than leaving charges at current levels and rebating part of them in cash.

The FSA is also consulting on a rule which would ban firms that give advice, whether they are independent or restricted, from using any platform that presents retail investment products in a biased way, such as ranking funds according to the size of fee or commission that the fund manager pays to the platform provider.