Great excitement today as the FCA published the long awaited PS13/1 confirming policy on payments to platform service providers and cash rebates from providers to consumers. On reading the paper it’s actually a bit of an anti-climax and it pretty much just rubber stamps what we’ve heard before. It’s a bit like a wedding night. Talked about for months and then it arrives and, well, I don’t know about you guys but I had quite a lot of champagne and… well let’s move on.
Cash rebates are banned although cash rebates of up to £1 per fund per month are still allowed. Unit rebates are allowed but – as we know – taxed. So pretty unappealing in most circumstances. Adiós rebates.The basic headlines are:
- This introduces us to the theme of competitive pricing – in the absence of potent rebates it’s time to gear up for the super clean share class debate which we think will gather momentum apace as laundromat analogies get thrashed about. Interesting Comment #1 from the paper – “Varying prices through different share classes may be a more attractive option given the recent clarification of the tax position.” Here we go.
- Total Cost of Ownership may have greater prominence as a concept moving forward. Nonetheless a challenge has been raised to vertical integration with Interesting Comment #2 – “if a platform service provider is also a fund manager, we would not expect the platform to be labelled as ‘free’ if the consumer invests in funds operated by that manager.” Hmmm.
- Legacy – this is a big one. What do platforms and providers do with old stuff which is still paying a commission to advisers? All legacy payments on platforms will be banned from April 2016. In simple terms, platforms have got 3 years from now before they will be required to turn it off. And three years to sort systems out. At a total one-off estimated cost of up to £62m. There will be a period of disruption over the mid-term as advisers are forced to re-visit ‘dormant’ clients and some of these will be re-housed. We estimate that about a third of customers on today’s big three platforms have not been reviewed for over three years.
- Platforms will still be able to charge fund managers for some stuff such as corporate actions, pricing errors and the like. But it won’t be very much. So no room for sneakiness here. But here’s Interesting Comment #3 – “We can also confirm that it was not our intention to prevent payments made for advertising… However, we have made it clear in the Handbook text that we expect any charges made to be reasonable and proportionate, reflect the service being provided and not vary inappropriately between different product providers.” From a consistency point of view this feels like the Achilles heel of the paper. Define reasonable.
- Interesting comment #4 – “It was not the intention to prevent platforms being paid by intermediaries for any services they provide to an intermediary firm, and we have clarified this point in the rules. We think this model will grow as basis points charging models are called into question.
So those are the headlines. We’ll be digesting the paper in full over the next few days and have invited all platform CEOs to share their comments and views with us. We’ll be adding this all together in more considered summary and bringing you our “Idiot’s Guide to the FCA Paper – Platforms PS13/1 on Monday next week.”
In other news, Transact has re-jigged its pricing this week and made it cheaper for those portfolios of less than £300k. Rather than repeat what we said in an article earlier in the week, we thought we’d hand over to Gizoogle for a different flavour on our take on this. Ian Taylor, Transact CEO, I dedicate this to you. “Transact has re-jigged its pricin todizzle. It make me wanna hollar playa! Da impact aint gonna be felt by forma Platinum clients wit portfolios up in excess of £300,000. This be a exercise ta address competitivenizz fo’ dem hustlas up in tha sub £300k bracket.” Quite. Don’t forget the impact of cash and interest rates on overall cost to client – we are reminded that, on average, Transact customers have 10% in “chedda” so be sure to check out the latest interest rate your platform is paying.
Have a lovely weekend folks. Over and out,
Holly Mackay is the managing director of The Platforum