Platforms in clarity clash on rebate ban

28 August 2010 8:00 am | By Natalie Holt

There is friction within the platform industry over whether the FSA should back down on its proposals to unbundle charges and ban rebates in an effort to make charging structures more transparent.

The FSA has delayed publication of its platform paper until later this year following frantic lobbying from all sides over its proposed ban on payments from providers to platforms.

Novia chief executive Bill Vasilieff says he believes the FSA intends to go ahead with the ban on rebates.

He says: “The FSA has probably worked out that there is no customer benefit from having such payments. Although the FSA has not ruled yet, to continue with the ban on rebates would be in the spirit of transparency.”

Nucleus chief executive David Ferguson says: “I think if the rebate ban does not go ahead and the FSA does not stick to its guns it would be a tragedy for transparency. I would be surprised if the FSA were to listen solely to the UK Platform Group.”

The UK Platform Group includes Skandia, Cofunds, Standard Life and Fidelity FundsNetwork.

Ascentric managing director Hugo Thorman says: “I hope the FSA is not considering backing down over rebates. At the moment, the likes of Fidelity, Skandia and Cofunds control the vast majority of the assets held on platforms.

“They are the ones that will be most affected and they are going to be a very powerful voice in telling the FSA that the benefit does not match the risk and the cost to them and their model. I believe that is not the case. The benefits for the industry and UK plc are far greater than the costs they are going to incur.”

If ban does not go ahead it would be a tragedy for transparency

David Ferguson

Some sources suggest the FSA appears to be moving towards a requirement for platforms to disclose rebates rather than an all-out ban.
Thorman says full disclosure of all rebates should be the “absolute minimum requirement” imposed.

Skandia platform marketing manager Jeremy Mugridge says banning reb-ates altogether would result in poorer outcomes for consumers.

He says: “The current rebate mechanism enables platforms to negotiate competitive fund management prices with fund groups on behalf of consumers, which enables investors to benefit from platform services and financial

advice for the same price as purchasing the funds directly from the fund manager.

Benefits are far greater than the costs

Hugo Thorman

“Removal of this mechanism is likely to drive up costs for consumers using platforms, regardless of the platform’s current charging structure.

Properly disclosing rebates to consumers should be a simple way of avoiding any confusion and creating the clarity needed over charges.”

Threesixty partner Phil Young says he views unbundled charging as “a nice thing to have” rather than essential. He says: “There are a lot of other ways to create transparency on a platform and with platform charges rather than just unbundling.

“Our biggest concern is that most platforms produce illustrations and calculate a reduction in yield in completely different ways. We find that is the biggest problem as far as transparency is concerned. The fact that you cannot compare one platform’s charges with another is more of an issue than whether a platform is bundled or unbundled.

Properly disclosing rebates should be a simple way of creating clarity over charges

Jeremy Mugridge

Fidelity International head of platform sales Julian Webb believes that the best way for the FSA to achieve transparency in the platform market is to require platforms to produce a key information document.

He says: “This would force platforms to disclose rebates whether to advisers, fund partners and customers and so ensure a level playing field for all and avoid any conflicts of interest.”

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