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Institutional platforms seek FCA rebate rules work-around

Institutional platforms providing custody and dealing services for white label clients could be exempt from FCA platform rebates rules.

Money Marketing understands a number of these platforms have sought clarification from the regulator as they believe they fall outside of the regulator’s definition of a platform service provider.

The FCA defines a platform service as one which, a, involves arranging and safeguarding and administering assets investments; and, b, distributes retail investment products which are offered to retail clients by more than one product provider but is neither, c, solely paid for by adviser charges; nor, d, ancillary to the activity of managing investments for the retail client.

These definitions were finalised in the platform policy statement published in April last year.

In the policy statement, the regulator confirmed all legacy payments on past business between fund managers and platforms are to be banned by 2016.

The ban on cash rebates and fund manager payments on new business came into effect this month. De minimis cash rebates of £1 are permitted but a tax charge will apply.

One institutional platform, Allfunds, which powers J&E Davy and RC Brown Investment Management propositions and provides some trading capability on the James Hay Investment Centre says it has received confirmation from the regulator that it can receive payments from fund managers where the propositions it powers are not classed as platform service providers.

It has yet to receive clarification for where clients are classed as platform service providers by the FCA.

An Allfunds spokesman says: “Where our clients are not categorised as a platform service provider then we are eligible to receive rebates and intermediary fees from asset managers for both legacy and new business. Our existing commercial terms will continue to be applied.

“We are still clarifying the situation with the FCA where our clients are categorised as a PSP and will act accordingly.”

Allfunds has written to fund managers detailing the clarification from the regulator and requested, where compliant, for fund managers to continue to pay the platform provider.

Investment consultancy Gbi2 managing director Graham Bentley says the situation is confused and the regulator needs to clarify the points raised by platforms. He adds it will be difficult to distinguish where institutional platforms can and cannot take payments from fund managers.

He says this will be increasingly hard where the institutional platform only has one firm and does not divide its services into different businesses.

Bentley says: “The regulator has to come out and clarify exactly where these payments can be made.

“It seems as though certain platform businesses will have to be granted some form of passport in order to clarify whether they can retain payments from fund managers.”

“The problem is if these payments are being made in the belief they are compliant and it turns out they are not, then both the platform and the fund manager will have broken the regulations.”

Cofunds provides institutional services, offering white-labelled platforms for a number of firms including Ashcourt Rowan, TD Waterhouse and Charles Stanley.

Although it declined to comment on any specific conversations with the FCA, head of marketing Stephen Wynne-Jones says: “The FCA policy statement means we can no longer take certain revenue from the fund managers and it applies across all of our channels – advisory and self-directed, institutional and bancassurance – the exception being where our institutional clients fall outside of scope.”

An FCA spokeswoman says the regulator does not have any plans to issue additional guidance around the issue although added it has been contacted by a number of firms seeking clarification over where they fit into the rules.

Fund groups are remaining tight-lipped around whether they will succumb to requests from institutional platform providers.

A Schroders spokeswoman says: “We are aware of such discussions but do not comment on individual commercial negotiations.”

The Platforum head of adviser platforms Freddie Findlater says: “It is sailing close to the wind from a regulatory perspective. Institutional platfroms might not be distributing financial products, but many are giving clients the tools to do so. If the institutional platform is carrying any of the risk associated with platform services, then they deserve to be treated as a platform. It feels odd to me this has not been publicly looked at yet by the regulator given the position of the institutional platforms is in direct contrast with, for example, how the Sipp market reacted to the rules with many groups ‘opting-in’ to be regulated as a platform.”

Avalon director Harry Kerr says: “Most platforms have decided to go clean and forget about any kind of way round the rules banning fund manager payments. There is obviously a gap for institutional platforms to maybe consider but I think the FCA will see that gap and look to remove any scope for people to get round the rules.”

He adds the regulator should have been clearer in its original rules to prevent this situation.

IFDS group executive David Moffat says even if firms are able to continue to take payments and remain within the rules fund groups may be unwilling to make such payments.

Moffat says: “It is unlikely fund groups will want to go back to the world where they are paying platforms. With the move to clean share classes they have made their intentions clear on that front.

“I also think the regulator would not be best pleased if it saw a large uptake of payments between fund groups and platform operators.”

UK institutional platform operators

  • Allfunds
  • AJ Bell – institutional arm of the business built on the acquisition of Lawshare in 2007
  • Cofunds
  • IFDL
  • Fidelity – e.g. providing fund platform to Barclays Stockbrokers
  • Pershing – settlement and custody services for 7IM and Raymond James
  • SEI
  • TD Wealth Institutional – power elements of bank propositions e.g. Natwest and RBS


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There is one comment at the moment, we would love to hear your opinion too.

  1. The ban on rebates to investors was always a very peculiar idea – how can it be such bad practice to give money back to a customer that it deserves to be banned! What would happen if this were to be extended to every other ‘money back’ offer? If there was any problem (very debatable) with rebates being used to obscure fees, it should have been dealt with through clearer disclosure. How many millions of pounds have already been wasted building complicated rebate reinvestment systems which are only going to confuse the customer? And as for ‘clean’ share classes – is that it in terms of reduced fund fees? What if someone negotiates an even better deal, even if only marginally? Yet another share class? I don’t think so – rebates will be with us even in reduced form for many years to come.

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