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FSA U-turn on bundled platform charging

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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.

 

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Readers' comments (9)

  • So, if I buy a car, or anything else in this life, am I aware of how much the Retailer makes?- or indeed the person who I'm dealing with?
    By all means, increase qualification requirements and cap charges and commissions, but let's have a sense of proportion here!

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  • This surely means that those platforms that have promoted their service on the basis that the commission rebates to the client account will now have a problem. They will have to sell institutional units and the adviser will charge separately. No wonder they are trying to pull in as much as possible now before RDR really hits.

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  • Talk about making life complicated!

    Surely it should not matter whether the rebate is cash or units, provided the format of the adviser charge is clear eg:

    Adviser charge is X
    Rebates client receives are:
    Investment 1 - Y%
    Investment 2 - Z%

    What could be construed as misleading or biased about that?

    I would venture that most clients would welcome a cash rebate to offset charges - it reduces the charge that they feel they would pay directly.

    I suspect that the real reason for the complexity of the proposal is FSA dogma - again!

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  • Is it 1st April?

    It seems utterly absurd that the FSA should seek to ban any method of giving the consumer a better deal by reducing charges unless there is overwhelming evidence that this is actually a bad thing and not the good thing it appears to be. Where is that evidence?

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  • Is it 1st April?

    It seems utterly absurd that the FSA should seek to ban any method of giving the consumer a better deal by reducing charges unless there is overwhelming evidence that this is actually a bad thing and not the good thing it appears to be. Where is that evidence?

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  • Once again, it shows that the FSA cannot be trusted. They are inconsistent and do not what they are doing or where they are going. I know where they should go.

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  • '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'
    What a cheek-A 'large rebate' effectively produces a low AMC for our clients-we wont and don't charge clients any more for running a stable of low charge funds than for running a stable of high charge ones-IFA's using unbundled charge Platforms e.g. the Nucleus Platform are charging clients portfolios the same irrespective of the fund house's AMC-if the FSA think otherwise could the FSA reveal the reserach please on which they are basing their assumption? In any other field of life surely such a body would be obliged to?

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  • Why shouldn't someone know how much I get paid by them? I know how much my accountant is paid, and I know how much my solicitor is paid. I provide a service just like them. I'm not selling a car! I'm not a salesman. A salesman does not need diploma level qualifications and is not responsible for a families financial well-being.

    Why do you think consumers at large are reluctant to engage an adviser, and why do you think they believe the Panorama programme? I'm not ashamed of what I do or how much I get paid for doing it. Yes I'm fee based and my clients love it.

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  • Funny how those who object to the bundled platforms and until last week thought they were sitting pretty are now getting all upset.

    Using a cash rebate to "reduce the charge that they feel they would pay directly." is clearly just as wrong as giving the client the impression that advice is free because commission is paid.

    I would have no objection to allowing cash rebates if it can be shown to help keep costs down but really do have to laugh at the hollier than thou unbundled brigade. Many of their responses seem to me to indicate that taking the moral high ground was easy when self interest was served.

    Perhaps we ought to skip CAR and move directly to fee based advice where the client pays the fee directly for the advice with no smoke and mirrors cash rebates or confusions ?

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