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FSA retreats on plans for bundled platform charges

The FSA has shied away from introducing a ban on rebates between fund managers and platforms and instead is calling for “improved disclosure” of the payments.

It is not yet clear how the FSA expects firms to demonstrate improved disclosure and it is consulting on the best approach.

The move was announced in the FSA’s long awaited consultation paper on platforms, published last week.

It represents a U-turn from the FSA’s original stance outlined in its discussion paper in March, which called for an outright ban on rebates between fund managers and platforms. The latest proposal follows heavy lobbying from the UK Platform Group, whose members include Cofunds, Fidelity FundsNetwork and Skandia.

The regulator is also proposing a ban on cash rebates to consumers where this offsets or appears to offset an adviser charge. The FSA says if cash rebates were to continue, there would be a temptation for advisers to choose the platform products paying the largest rebates to fund the adviser charge.

Fund managers can still rebate part of their fund charges to consumers in the form of additional units.

Nucleus chief executive David Ferguson says: “If there is full disclosure on rebates between fund managers and platforms, that is pretty much the same as unbundled as platforms will be forced to tell the truth about what they are getting.”

Skandia UK chief executive Peter Mann says: “It is important that the best interests of consumers have been preserved in the decision to retain payments from fund groups to platforms. This will benefit the customers using those platforms that can agree competitive fund management prices on their behalf.”

Other proposals include the requirement that clients must be able to re-register their investments to a different platform or another nominee arrangement by the end of 2012, without first encashing their assets.

The FSA also wants investors who access funds through a wrap to receive the same information and voting rights regarding changes to collective investment schemes that they would if they held the funds directly.

The consultation paper closes on February 17, 2011. The FSA plans to issue a policy statement “as soon as possible in 2011”.

What this means for fund supermarkets
Fund supermarkets, which operate bundled charging structures, will have to disclose payments they receive from fund managers to clients. At present they only have to disclose such charges if the client asks. Platforms will only be able to charge fees in relation to the administration service provided to the fund manager and will not be able to rank funds depending on the fee they receive as the FSA strives for impartiality in product presentation.

What this means for wraps
Wrap platforms, which generally operate unbundled charging structures, will be hit by the proposal to ban cash rebates. Currently, wraps usually pay fund manager rebates into the client’s cash account, so the move to ban this process is likely to require system changes.

What this means for advisers
The regulator plans to monitor how advisers manage conflicts of interest where they own a stake in their chosen platform. Rules will ensure that adviser platforms, funded by adviser charging, are separated from the platform definition affected by the new rules. Advisers will be banned from using platforms which present products in a biased manner.

What this means for investors
Investors will receive more information about the various costs involved in providing platform services and the ability to exercise voting rights when changes are made to their investments in collective investment schemes. The FSA expects fund costs to be reduced. Part of the FSA’s rationale for not banning bundling was that it could increase investor costs.


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