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FSA warns revenue-share deals will be outlawed under RDR

The FSA has warned that revenue-sharing arrangements where advice firms hold shares in a platform and benefit financially by investing client assets on that platform will not be allowed to continue after the RDR.

Speaking at the Capita Financial Software conference in London last week, FSA conduct and risk division supervisor Rory Percival said the regulator has seen firms form revenue-sharing arrangements recently that would breach the RDR.

Percival said: “The rules we have set out clearly prevent an advisory firm white-labelling a platform and sharing the revenues generated through advised business being placed on the platform. I make this point very clearly as we see firms introducing revenue-sharing arrangements now that apparently will be in breach of the adviser-charging rules in 2013. We ask whether firms are really introducing an arrangement that has a shelf-life of 15 months or if they have misunderstood the adviser-charging rules.”

Percival added that there are no rules against adviser firms holding shares in platforms but stressed that conflict of interest issues must be managed in these cases.

IFA firm Paradigm announced last month that it has signed up as a shareholder in IFA-owned wrap Nucleus and extended its deal to white-label Nucleus to power its platform by five years.

Nucleus chief executive David Ferguson says: “It is not possible to comment on the FSA’s view in the absence of greater detail or rules.”

Ascentric head of marketing Dominic Ventham says: “This is an area that the FSA has been clear about. Adviser firms cannot keep any margins arising from platform business. The only real grey area is how you reconcile having a shareholding in a platform and the degree to which this then influences where you place client money. Disclosure is obviously key here together with the demonstration of platform suitability.”

Bloomsbury Financial Planning partner Jason Butler says: “As long as the adviser is carrying out the requisite research for their clients, then whether or not they take a share of the profits of a platform should be irrelevant, as long as the service and the price the customer receives is good.”

Pilot Financial Planning director Ian Thomas says: “Advisers having a shareholding in a platform could work for the good of consumers because they could have an influence over the way the platform operates.”


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There are 12 comments at the moment, we would love to hear your opinion too.

  1. So oli producers shouldn’t have control over distribution?

  2. And what about advisers who hold shares in a platform (as opposed to the company)? And, is a minority holding really influential? Let us say, we put a million pounds of assets on Transact. Is that going to really benefit us?
    As in life, because the problem is so bad in extreme cases (theoretical in some instances), this therefore justifies the heavy handed “cure” however unreasonable or illogical or inconvenient it may be.
    Take pension transfers as another example. The cure – the FSA checklist – is so unreal, impractical and costs the consumer a significant amount of money while we struggle to comply to cover our backsides.

  3. Rory Percival (FSA) was at the FSA RDR roadshow in Bath I attended a month ago. He was quite a human chap and worth talking to.
    I did however personally give him a very hard time over two particular issues 1. the right to charge more than one client for the same piece of research even if working on hourly rates, which I practically never do. The reason I spoke out was he used thw words “unethical” so I remeinded him it was unethical for the FSMA to have removed our access to a 15 year longstop without debate, so the longstop came up quite often and the fact that since the TSC meeting with regard the RDR where Hector Sants had said they were open to discussion/looking at the longstop again despite it not being part of RDR, there has not been a PUBLIC word or any discussion I am aware of on the matter since. I described that as a “disengenous” statement from Hector Sants I think, which if nothing more is said about longstop before the anniversary of the TSC meeting could be described as an unethical fob off by Hector instead.

    FSA senior staff are human and if it is explained to them, they can see the other side of an argument. The problem is we rarely get the opportunity to explain it to them and even when we do, the ability to change policy if they then see our point does not always exist (i.e. the longstop issue, where few at the FSA argue for it as far as I am aware, they just bsay “talk to the hand” and they just keep their mouths shut on issues they cannot change)
    The longstop has no implications for me until about 2020, but due to my personal ethics, it is essential the injustice is argued about NOW, when it is not for my benefit. Bystander apatchy is NOT an option in a civilised society.
    It is a pity that FSA staff will not stand up and be counted on the issue. I have previously challenged Amanda Bowe to express a PERSONAL opinion on the longstop and I would challenge Rory to as well.
    To-ing the party line is how Albert Speer ended up in Spandau for the rest of his life….

  4. I did however personally give him a very hard time over two particular issues 1. the right to charge more than one client for the same piece of research even if working on hourly rates.

    This is what solicitors do all the time.

  5. But everyone charges more than one customer for research – that is what the essence of training is, learning and research. If the research does not enhance one’s understanding of a specific issue I would suggest it is fairly worthless. If it does enhance understanding then it will directly or indirectly effect the quality of advice given to every customer. So it is to every customers advantage.
    I struggle to understand how it is possible to unlearn something so that a future customer is not a beneficiary of that learning.
    The Regulator is creating an environment that is so totally dysfunctional it is producing discussions on the absurd. This is really becoming Advice in Wonderland.

  6. Agreed Glen
    Move along and pour the tea !

  7. @Sean that was what was pointed out to Rory by an IFA who worked in a solicitors practice and may be why he backed off very quickly from his original belief that it was unethical… it would add even more to the argument for removal of a longstop for solicitors, accountants and surveyors who constuct things that last longer than a lifetime (the solicitor drafts the trust after all) OR as it shoudl do support the argument that the longstop should be respected, recognised and worked to(note I don’t say re-instated as parliament has NOT removed it) by the FOS.
    What’s goodfor the goose is good for the gander….. unethical financial advisers doing the same as “ethical” solicitors who know the law god forbid!

  8. I was at this meeting and my interpretation is slightly different. Absolutely revenue sharing deals are banned post RDR. Arguably they are not that appropriate under current rules if not disclosed to the standard of informed consent.

    However I thought Rory said that a shareholding was OK provided you can satisfy the Clients Best Interest and Conflicts of Interest rules.

  9. @Les, that’s what I think I heard Rory say too.

    Anyone got a recording as they didn’t ask us not to make a record?

  10. The FSA are right. These schemes are designed to make a hidden return for the distributor – hidden from the client – or glossed over at best. Massive conflict of interest that if an adviser saw in say a fund manager they would run a mile – but it’s OK for them because they are so much more professional, ethical etc that the shareholding/value share/ bung (call it what you will) makes no difference to their recommendations.

    It must be lonely up there on the moral high ground in IFA land!

  11. What FSA are saying is that owning a share in a wrap platform like Nucleus, Transact etc is ok as long as any potential conflicts of interest are managed. This is fine, FSA Principal 8 covers this already.

    What FSA don’t like are skims off the top of a platform, where a national/IFA /Network/ IFA ‘support’ co are taking extra bps. These are are paid by the client in one way or another, so that a client is paying more if he/she was unlucky enough to walk through one IFAs door rather than another’s.

    So does anyone think that a skim is somehow fair to their clients?

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