Platform reforms inconsistent with RDR, says Cofunds
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Cofunds has criticised the reforms outlined in the FSA’s discussion paper on platforms, saying the proposed rule changes represent a shift away from the retail distribution review’s core objectives.
The fund supermarket has published a White Paper entitled “RDR and fit for purpose platforms” which looks to trigger further debate around the issues raised in the FSA’s DP10/2 discussion paper.
The discussion period for DP10/2 ended on May 26, and the FSA had planned to publish a consultation paper in the summer. Cofunds CEO Brett Williams says that the FSA says this is now likely to come out in September instead to allow the FSA more time to process the feedback it received.
The Cofunds White Paper says: “If the proposed reforms are implemented, Cofunds is highly sceptical that the FSA will successfully achieve its outcomes for RDR - indeed, we remain unclear about whether the desired outcomes have now changed and more fundamentally what specific problems DP10/2 is looking to address.”
Williams says: “We agree with the wider RDR objectives of transparency and customer engagement. But we think the FSA has moved away from those with the latest discussion paper.”
On the proposed plans to ban rebates and move towards an unbundled pricing structure across all platforms, Williams says there is no evidence of any bias caused by operating a bundled or unbundled pricing structure.
Cofunds plans to offer both bundled and unbundled pricing. Fidelity FundsNetwork and Skandia have also made this commitment.
Williams says: “It should be a test of suitability. The FSA should take that into account rather than use a sledgehammer to crack a nut.
“I don’t think the FSA need to legislate for something that is being driven by the market anyway.
“The biggest issue for me is that out of this process we don’t make it more expensive and more complicated for the end investor.”
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Readers' comments (19)
Julian Sunley | 16 Jun 2010 2:24 pm
Here here, I agree with Cofunds.
The effect on the end consumer should be the most important thing, as they are the clients who own the money, not the IFA or product provider.
Platforms offer significant advantages direct to clients (reduced admin, consolidated tax vouchers, online access etc) as well as their adviser and it seems to me that making full unbundling mandatory and banning rebates would actually detriment the clients rather than benefit them as additional charges are likely to be levied on them.
Fees for advice make total sense (I use a fixed fee basis based on a time estimate and hourly rate), but unbundling product provider costs for products such as platforms seems less sensible. When was the last time you saw a label in a shop telling you the cost price to the retailer and how their margin breaks down?
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Mr Smug | 16 Jun 2010 2:34 pm
It's getting silly now - next the FSA will be telling us what colour the brochures should be.
This is not something that needs the intervention of the regulator. It doesn't matter how the charge is made up, all that matters is that the client knows what the total cost is going to be and what his adviser is receiving.
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John Blackmore | 16 Jun 2010 2:53 pm
you really can't blame the wrap providers for pushing the unbundled argument. Being more expensive they have to do what every they can to hurt the competition BUT it seems strange that the FSA have been so easily taken in.
Yes the do have a track record of getting this expensively wrong but it is still difficult to understand their view that even if the outcome is more expensive ( which it clearly would be) the investor will be better off ?
Transparency can easily be achieved without adding an extra 0.X% pa to the cost of funds.
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You must be joking | 16 Jun 2010 3:13 pm
Fully agree with Brett here.
The FSA appear to only be listening to the "new players" in the market, who can't be as competitive as the "old firm" of Skandia, CoFunds, Fundsnetwork and Hargeaves due to their economies of scale.
Its bit like them saying "It's not fair, we can't compete on charges so lets make everyone more expensive!"
Whilst competition and new entrants are good for the market, this shouldn't be at the expense of additional charges - WHICH THERE WILL BE - for the customer which will be as a direct result of the FSA's misguided approach.
Carry out a cost analysis for any portfolio of collectives, at any level of investment, and Skandia, CoFunds or FN will come out the most competitive. The unbundled offerings WILL be more expensive...
A good outcome or customers? Not bloody likely!!!!
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Tom Scott | 16 Jun 2010 3:27 pm
The FSA also do not appear to be comparing like with like. A platform such as Cofunds is relatively simple and will appeal to clients who want a cheap simple solution. Unbundling makes it complex and more expensive.
Unbundling is appropriate on full wraps like Transact as there is no other way the charges can work. This is a far more expensive and complex product and the end user is very different.
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Anonymous | 16 Jun 2010 3:34 pm
No point in talking common sense - the FSA knows best - ha, ha.
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David Ferguson | 16 Jun 2010 4:47 pm
Rather tied up today so will be unable to respond but I thought a hard fact might be useful:
The average amount paid by a Nucleus client for the platform (inc all tax wrapper charges) and asset management is 0.86% (ie excluding advice fee). For the record Nucleus runs on a fully transparent, unbundled model and this data was recorded last week.
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Bill | 16 Jun 2010 6:00 pm
Having just looked at an SJP recommendation based on their investment approach, which overall barely exceeds the respective sector average, to consolidate 4 PPPs into their more expensive contract with 6 year exit penalties (starting at 6%) and two free switches p.a. I would have thought the FSA should have more important things to look into.
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Dathan Steele | 16 Jun 2010 6:45 pm
Nice to see plenty of informed comment, as usual! :(
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You must be joking | 16 Jun 2010 6:52 pm
Hi David
I know we still haven't managed to actually have a conversation, but you do have my email address.
I'd be very interested to see your analysis/calculations referred to above.
Many thanks
YMBJ
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