The FSA’s discussion paper on the RDR has received much deserved attention on these pages but its younger and far prettier sister, the discussion paper on platforms, is in danger of being neglected.
This would be a shame because the paper contains some excellent insights into this new and rapidly growing sector. In our view, it sets out a good blueprint for the platform market’s continued development and expansion, whatever the shape of the wider industry reforms.
Odd, you might suspect, for someone like us to praise a paper from the FSA. However, there are good reasons for our support. First and foremost, the paper attempts to put the consumer at the heart of the debate about the future of platforms. We know that platforms bring great benefits for advisers but let us not take our eye off the client’s interests.
Second, the paper recognises – and tacitly condones – different pricing models. This is an obvious consequence of putting the consumer at the centre of future development. Rather than taking a prescriptive approach to pricing, the FSA quite rightly proposes that the emphasis be put on transparency. Ending the practice of scattering the different components of pricing across consumer documentation is a welcome step forward.
My third reason for heaping praise on the FSA is its focus on adviser competency. Given the increased importance of platforms to the mutual fund industry, it is only right that advisers and potentially new providers do their due diligence, a point acknowledged by the regulator in this paper.
We would suggest that the FSA takes an even closer look at capital resource and operational resilience when sanctioning new resources.
It is also encouraging to see the FSA take this opportunity to dispel a few myths, not least the fallacy of the 20 per cent rule, which states that IFAs cannot place more than 20 per cent of their business with a single provider. This has been mistakenly interpreted by some advisers as a bar to using a single platform for most or even all their business and so limiting the benefits that platforms can bring to a firm. A platform is not a provider – it is a service.
Fifth – and perhaps most newsworthy of the paper’s proposals – is the FSA’s stance on platform to platform re-registration. Some advisers have complained, with some moral justification, that it is difficult to carry out off-platform re-registration. The regulator has brought a strong dose of common sense to a debate that has often generated more heat than light.
The FSA is clearly right to emphasise the importance of clients. Movement of legacy assets must be in their interests. But the watchdog cuts to the core of this debate in identifying the complexities, in particular how fund managers have technical limitations on the transfer of units.
As FundsNetwork has said for some time, the entire industry needs to collaborate to establish standards and processes.
Last, but by no means least, the paper issues a direct challenge to those platforms that issue shares to advisers who use their services. This is fertile ground for conflicts of interest. We are encouraged that the FSA is aware of the potential conflicts that could arise here.
Like much else in the paper, it is evidence that the regulator has grasped the importance of fund platforms and acknowledged that they have a vital role to play in any wider industry reforms.
Rob Fisher is head of sales and marketing at Fidelity FundsNetwork