Wrap platforms have questioned the rationale behind the regulator’s move to ban cash rebates and challenged the regulator’s claim that advisers use big rebates to absorb adviser charges.
The FSA’s platform consultation paper, published last week, proposes to ban cash rebates to consumers where they offset, or appear to offset, an adviser charge. It suggests that if cash rebates were allowed to continue, advisers could opt for products with big rebates to mask the adviser charge.
Rebates can still be paid in the form of additional units.
Ascentric managing director Hugo Thorman says: “This will end up with the client and the adviser having to sell units regularly to pay the charges, as there will be no cash coming into the account to pay the adviser and no cash to pay the platform.”
Transact head of marketing Malcolm Murray says: “Within the top 10 funds chosen by advisers on Transact, three of them pay no rebate at all. This suggestion that there is a link between the rebate and the amount the adviser charges as far as we are concerned does not stack up. The cure the FSA is recommending seems to be far worse than the disease.”
Nucleus chief executive David Ferguson adds: “This idea that advisers pitch their commission level at a level equivalent to the rebates is nonsense. It is a conclusion that is so farcical it is hard to support.”
But Novia chief executive Bill Vasilieff believes there is a way to comply with the regulator’s proposals.
He says: “For wraps such as Novia, we will need to split the client cash facility into two parts, only one of which can be used to pay the adviser. This is not a massive change for us to make.”
Skandia UK chief executive Peter Mann
’The new guidance is not good news for those platforms who were assuming their existing charging structures were already RDR-ready. Those platforms that pass rebates back to the client’s cash account will no longer be able to do that, so they have some fundamental changes to make.’
Nucleus chief executive David Ferguson
’The big, big, big news is the requirement for fund supermarkets to disclose how much they are paid by asset managers.
While the enthusiasm which greeted the distribution paper in March may be moderately tempered, this announcement confirms we are light years ahead of where we were at, say, the beginning of this year. For too long the inner workings of where client money ends up have been kept away from advisers and their clients.’
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