2012: Platforms await FSA clarity on cash rebates
After an uncertain 2011, with negligible asset growth across many platform providers and continued regulatory uncertainty over future rules, firms will be hoping for brighter things this year.
The industry is hoping for clarity from the regulator regarding its proposed new rules. These are set to include a ban on cash rebates to investors and payments between product providers and platforms, for both advised and non-advised offerings, as it proposed in its August policy statement. However, the FSA is conducting research to ensure it is making the right decisions.
The burgeoning corporate platform market is set to continue to grow in 2012 due to the increased focus on employee engagement and workplace savings that should be triggered by the start of auto-enrolment for bigger firms.
Aegon UK launches its corporate platform this month. Group marketing director Paul McMahon says it is operating a cash-rebate model and is hoping to convince the regulator over the next 12 months that this is the most transparent way of working.
He says: “We want this offering to have a focus on providing retirement targets. A lot of the alternatives to cash rebates are less transparent because they create more complications and are harder for customers to understand. We are trying to put that point across to the FSA and we will continue to do so.”
But Novia chief executive Bill Vasilieff (pictured) says he expects to see a blanket ban on all rebates from the regulator.
He says: “Given its tough stance on legacy commission, I believe it will take a similarly tough stance on rebates and just ban them outright.”
Pressure on pricing is expected to continue as platforms compete aggressively and more players enter the market, such as Citi, which bought Scottish Friendly’s administration business last year.
The Platforum managing director Holly Mackay says: “This is an inevitable move in the market as big players such as Citi come into the sector and drive costs down.”
In the last 12 months, there have been several new entrants to the market and there are likely to be further new players coming in this year. There is likely to be a battle between platforms and software providers trying to strike deals with distribution firms yet to come up with their own platform proposition.
SEI Global Wealth Services UK business transition managing director Richard Goodall says there are some big distribution firms that have yet to make their move ahead of the RDR.
He says: “There are a number of firms out there who are big enough to have their own platform proposition and they are firms who will want to get this sorted over the next year. Firms with assets under management of upwards of £1bn would be the size that would be big enough to have their own white-label offering.”
The traditional fund supermarkets are looking to commit to unbundled models and ready themselves for the new “transparent” platform world.
Fidelity is aiming to produce its unbundled model in the first quarter and Cofunds will launch in July. Skandia has yet to reveal details but plans to produce its own new charging structure in the fourth quarter.
In September last year, Cofunds revealed the details of its unbundled proposition. Assets of up to £100,000 will be charged 0.29 per cent while between £100,001 and £250,000 will be charged at 0.26 per cent. Assets between £250,001 and £500,000 will be charged 0.23 per cent, between £500,001 and £1m will cost 0.2 per cent and for over £1m, the charge is 0.15 per cent.
Cofunds says it is requesting a clean share class from fund managers for the unbundled model. Clients can opt to stay in the bundled proposition.
Nucleus chief executive David Ferguson (pictured) says the big three could struggle to make the move to a transparent model, having operated in the current way for so long.
He says: “Supermarkets have traditionally worked for the asset management community and been paid for it. Making the transition from that model to an unbundled one is a night-mare trip I think most wraps are pleased they do not have to make.”
Transact managing director Ian Taylor says the platform market will become more homogeneous in terms of pricing due to the small number of software and technology firms providing the systems and administration to many platforms. He suggests service levels will be the key difference.
He says: “Platforms are going to have to make sure their service is as good as possible because as there are only so many technology companies to build platforms, the market is going to look very similar across all the different platform providers.”
Taylor adds that the relatively slow process of assets moving on to platforms will continue this year. He says: “This change is relentless and, as a result, it looks like the position of chief executive of a wrap platform is a lot better place to be than the chief executive of a life company.”
Direct-to-consumer platforms are expected to continue to grow along with adviser propositions. According to The Platforum, assets held on direct-to-consumer platforms as of September were around £85bn. New propositions are likely to have to deal with the regulator extending its ban on payments to the execution-only market.
However, figures such as Bramdean Asset Management chief executive Nicola Horlick and former Cofunds director director Andy Creek both still see big potential in this area, with new platforms just launched or launching this year.