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MM Leader: FSA gets it right on bundling but wrong on cash rebates

After a sustained and presumably expensive lobbying campaign from some of the bigger platform players, the FSA has relented from its original view that so-called bundled pricing should be banned.

However, it is clear from last week’s platform consultation paper that the FSA will not tolerate more murkier aspects of this market which breed bias and blunted potential commercial directions of travel for the fund supermarkets which would not have been in consumers’ interests.

On balance, the FSA is right in its assessment that a complete ban on bundling would be overly sdraconian and could have lead to market distortion. It is fair to suggest that platforms should be able to charge a fee to fund managers for their services.

The major concerns regarding many bundled charging arrangements centre on the fact that charges are opaque and hard for the consumer to follow and that it leaves open the potential for bias in the form of shelf-space fees and fund rankings based on the size of payments to the platform.

The FSA will reveal its new disclosure regime next year which should shine an important light on payments from fund group to platforms. The current Mifid disclosure requirements do not do enough to protect the customer.

Another positive move is the proposed ban on advisers using platforms that present products in a biased manner and rules to ensure any shelf-space fees are consistent with the administration service that is being offered by the platform.

The FSA also makes clear that it would not be appropriate for an adviser to use for the majority of their clients a platform that only features products that it received a fee or rebate for.

However, while the FSA has shown pragmatism over the bundling ban, its proposed ban on cash rebates is a case of removing a wheel that is not broken and is in fact working well.

The FSA is concerned that allowing cash rebates to continue would undermine the objectives of the RDR as rebates are set by the provider and so could lead to bias being retained.

But the RDR remuneration reforms should already be enough to police potential concerns in this area without cutting off a mechanism that is working in the clients’ interests.



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