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FSA platform rules risk consumer detriment

The clear intent of the FSA’s platform policy paper puts an end to the debate

The FSA’s policy statement on platforms will come to be seen as a statement of intent. I spend a fair amount of time reading FSA publications and, outside of enforcement bulletins, I have rarely seen such a clear flexing of regulatory muscle.

The regulator is clear that the retail distribution review is about transparency and consumer detriment (or the FSA’s view of it) and nothing else.

Take the section on cash rebates, which has peeved lots of people. The FSA says 75 per cent of responses disagreed with the cash rebate ban and summarises those arguments clearly. It goes on to say: “We do not feel that any of these objections should prevent us from proceeding with a ban. A number of respondents to the consultation noted a ban on cash rebates would require significant and expensive system changes. We do not consider this is a reason to pull back from the idea of a ban.”

In other words, the FSA believes the responses were determined by self-interest and no one has been able to convince it that its view on potential detriment from advisers playing it smart with rebates is unjustified.

The cash rebate proposal is a pain but the payments to platforms section is dynamite. I agree with it but realise it is not a good day for those platforms that depend on retaining rebates and shelf-space fees.

Again, this can be seen as a flexing of regulatory muscle. The FSA was stung by criticism that it was lobbied into submission by the big guys and this change to its position in CP10/29 is a reaction to that.

Bundled platforms represent the majority of the assets in the platform sector.

That model is now under threat. This did not escape the market’s attention and Hargreaves Lansdown shares fell by 12.7 per cent in a day.

But at least Hargreaves makes money. What about the big bundled players such as Skandia or even Cofunds? The former is reported as needing cash injections to plug losses, the latter is profitable now but has needed huge scale to get there. What happens when a hole is punched in their revenue streams?

On the other hand, the unbundled market is transparent and price-sensitive. Will the margins these businesses require be there?

The changes could have a greater impact than we think and there is a potential for consumer detriment from these companies no longer being able to invest in their propositions.

Something else interesting happened in PS11/9.

For possibly the first time, the FSA has broken its own deadline of the end of 2012 for the implementation of an RDR-related change. What are the odds that the FSA takes the opportunity to pop another few items into the regulatory shopping bag?

The legacy assets’ issue is raising its head again with a two-month consultation and I sense some more muscleflexing coming on. If existing business is disturbed by new rules, the impact on the provider and adviser community will be so profound that the rest of the changes required will look minor in comparison.

In the relentless analysis of the RDR, it is easy for us to forget just how flawed the FSA believes the retail financial services investment industry is. And, in general, the RDR is good, if flawed in parts, from a consumer point of view.

You also have to praise the FSA for conducting a really comprehensive consultation. We were given a chance to engage and if we did not take it, we cannot complain.

The dialogue from now on in is how we build it, not whether it is a good idea. The FSA has reminded us who is really in charge, whether we like it or not.
It is time to get to work.

Mark Polson is principal of The Lang Cat

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. No doubt all sadly true. BTW have you rad the OFT report that makes the case for ‘consumer detiment’? I have and it is nonsense. Consumer Detriment’ are weasel words. It’s lunatic quango speak. Analyse the report and as that is what the RDR is based on the case for the RDR crumbles.

  2. Oh, and so what about the bundled charges on platforms like Cofunds and Skandia? there is no extra charge to the client for using these platforms as the cash rebate comes from the existing AMC etc on the underlying funds. Unless, of course, the charges are added to the funds expenses, and if so it would show up in differential TERs, which it does not seem to. As regards adviser trail this is declared to the client and is again neutral.

    What this is is the Failed FSA tinkering with soemthing it does not understand than for no better reaosn that it offends its own ideas of what is right for all. This is cannot ever know as knowledge is dispersed in society and people buy differences, not similarities.

  3. To separe those charges is in the consumer interest. In a long term the charges down will go down. And I am not refering here to ‘advisor charges’ or ‘platform charges’ but to the AMC.

    Probably you have already seen Schroder funds at 0.40% AMC. I can’t see in the future fund managers charging more than 0.50% unless you are Neil Woodford.

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