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AJ Bell boss urges return of cash rebates in industry talks with FCA

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AJ Bell chief executive Andy Bell is pushing for the return of cash rebates and greater pensions simplification in a move to drive the financial services industry forward.

Bell, who co-founded the provider in 1995, has discussed with the FCA a number of major initiatives that he believes will deliver improved competition in the platform market and better engagement with pension saving.

Last week Money Marketing reported on Bell’s call for regulatory guidance on transferring clients in bulk to a new platform amid concerns advisers were finding the compliance burden too onerous.

He also believes the FCA’s interim report on the asset management market, published in November, could provide an opportunity to redress the balance on post-RDR charging.

Bell argues bringing back cash rebates, which the FCA banned in April 2014, would address the concerns about charges highlighted by the regulator in the asset management study.

He says: “In the report the FCA says platforms are in a unique position to put pressure on fund managers and get a better deal for clients. But that’s what we were doing before via cash rebates, and if the FCA had allowed us to continue offering these, that’s what we would be doing again.

“The RDR has shone a spotlight on advisers and platforms, whereas fund groups in the main have created a new share class at 75 basis points and not given up a penny’s revenue. The asset management study was right to say fund managers have not really embraced the RDR, and certainly haven’t moved much on charges barring a few exceptions.”

Competitive tension

Bell says cash rebates are understood by clients, advisers and platforms and offer “competitive tension” by allowing platforms of scale to secure better pricing.

He adds: “There has been an opportunity lost here. The FCA may decide to fight the fund groups in a different way. I’ve given the regulator my thoughts on this, and the FCA should be big enough to say it has tried something, it hasn’t worked, and now they can go back and relax it.

“It’s all about what’s best for the consumer; politics shouldn’t come into it. With a new team in place they can admit cash rebates were a force for good and look at reintroducing them.

“It would also help them achieve the objectives set out in the asset management study.”

On pensions, Bell wants to see a separate pension tax relief system for defined benefit and defined contribution schemes, with the lifetime allowance in place for DB schemes and the annual allowance applied to DC pensions.

He says: “Take away the legislation that tries to cover DB and DC schemes, and instead for DB you limit the benefits and for DC you limit the money paid in without penalising good investment growth.

“If you structured it on that basis, then the legislation would only need to stretch to a few pages to ensure there was no abuse of the different systems. That would create a far simpler pensions regime, and a lot of the complications we have now would fall away.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. I don’t disagree

    The FCA like the FSA before them is starving the industry of oxygen, and we know when, staved in this way, like our bodies, this oxygen is diverted to the most important parts, leaving the rest to shut down and one by one, until the inevitable…….

    In truth regulatory dogma, has to seen as infallible, even in a world where it is very rarely right !

  2. Freddie Findlater 23rd January 2017 at 1:47 pm

    It’s a tough balancing act and depends what customer-focused-mantra-of-the-month is winning at the time: Simple but opaque (cash rebates) versus Complicated(ish) but transparent (current model)

    Notice that neither are perfect…

    • What is worse than imperfection is flip flopping as it goes against the F-pack stated mantra of clear, fair and not misleading and continual and rapid change, which is what we have seen in both regulation and government policy appears designed to confuse and mislead the voting public.

  3. Freddie – cash rebates are not opaque if they are paid to the customer. They were opaque before RDR when the platform retained some of them and no one knew how much. If they are paid to the customer they are as transparent as unit rebates – arguably more so.

  4. As I have long argued. increasing a rebate is quick and simple. Creating a whole new share class at a lower price and then transferring existing investors from one share class to another is massively expensive, complicated and confusing. No wonder it doesn’t happen. The ban on cash rebates to investors was a massive mistake by regulators – although that was largely diffused when cash rebate reinvestment was belatedly allowed into near cash funds which units were them earmarked for encashment when the next fees were due. Complicated to administer but in practice little different from plain cash rebates.

    The remaining problem is therefore the HMRC tax reversal after 15 years of saying the opposite – which nobody in the industry had the gumption to fight even though some had much stronger legal grounds than others. The tax position (i.e. income or not) all depends on how the rebates were described both in the platform/fund manager and platform/client agreements. Not all had it right but even those that did were dissuaded from fighting it!

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