Early this year the FSA said it would hold off a decision on rebates to undertake analysis and research. Having undertaken that work through Deloitte and NMG it has regrettably interpreted the results as confirming its original view.
If you believe its main rationale for a cash rebate ban (i.e. that such rebates allow advisers to pretend there is no charge) why are unit rebates different? There can be no logic in disallowing rebates to the cash account while allowing unit rebates which must then be sold to cash in order to pay charges. All it does is add complexity confusion and cost.
How does that help the customer? Who is going to explain the inexplicable crediting and selling of units in the account and the resulting CGT implications in the taxed GIA account? Who is going to pay for the time providing the explanation?
There is, of course, an alternative which is to standardise on the new, typically 0.75 per cent ‘net’ share class. That should work, but only if the platforms can persuade fund managers and their administrators to undertake concurrent ‘flipping’ when assets are re-registered. ‘Flipping’ is the term I have heard used for a switch from one share class to another. Let’s say a platform ‘flips’ all units to 0.75 per cent share class. The next day a customer asks to re-register fund supermarket funds to the platform. These funds are likely to be 1.5 per cent units on which we may not now pay a rebate in cash. If we can’t ‘flip’ concurrently it might take a week or a month to flip them. That means we have to pay the 0.75 per cent rebate in units for say just one month. Then we sell them to pay adviser and platform charges….the reporting, the explanations, the reconciliations and the costs will all rise. It is clear to see that our best efforts should now be spent working on fund managers and TPAs to facilitate ‘flipping’ in all cases.
This paper is strictly a consultation. The arguments are, however, the same now as before. It looks as though minds are firmly made up. Contrary to what has been said in some quarters this is not about self interest. The implementation of unit rebates is an inconvenience for wrap platforms, nothing more. It is the client who will suffer most from this.
The paper wasn’t all bad. The inclusion of non-advised platforms must be right for the reasons stated. The NMG research demonstrates the challenge faced by customers in understanding platforms so the thought of trying to explain the existence of two different models to clients is probably sufficient justification. The removal of any potential fund bias is equally compelling.
Hugo Thorman is chief executive of Ascentric