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Payment ban splits firms

The FSA plan for banning any payments between providers and platforms, including all rebates, has split the platform industry.

In last week’s platform discussion paper, the FSA says its current preferred option in tackling bundling and rebate issues would be a clear ban on all payments between providers and platforms.

This followed a thematic review which found “some wrap platforms disclosed their charges so poorly that customers were unlikely to understand the amount or effect of the charges”.

The paper says “The bundled charges’ model of platform remuneration may hamper the potential growth in market share for many products which do not or cannot pay fund supermarkets.

“We want to end the practice of product providers levying higher charges and then rebating a portion of them to the consumer, as this sort of ’rebate’ could obscure the existence of the adviser charge that the customer will pay.”

Fidelity International head of UK retail sales Peter Hicks says: “This proposal had a starting point of transparency, which we support, to a giant jump of transparency meaning it has to be unbundled, which I think is wrong. I don’t see why we cannot have the bundled pricing we have today with transparency. If you buy any given mutual fund it is likely to be more expensive through an unbundled platform than a bundled one.” He says the FSA should proceed with another option to create specific rules on unacceptable practices and require specific disclosure of income to the consumer.

Cofunds chief executive Brett Williams says: “I worry about unbundling being the wrong solution for the majority of people. For some clients, it is right but for the majority it is too complicated. For most people, going unbundled would cost them more, as the charge the platform would take would be higher than the charge we take and will probably push fees up as there is pressure on margins.”

But Nucleus chief executive David Ferguson supports the FSA’s stance. He says: “It is great news, but not if you are Skandia, Cofunds or Fidelity FundsNetwork but that is too bad because it is much more important that we have greater transparency and greater customer choice and those companies are just going to have to deal with that.”

Ascentric managing director Hugo Thorman says: “The ending of fund manager rebates will force those with bundled structures on to a level playing field with unbundled wraps. The adviser and client need to know where fund availability is being influenced by a rebate that is undisclosed.”

Novia chief executive Bill Vasilief says: “When things are not transparent, there is always a bias. There is a lack of trust in our industry and transparency and unbundling is absolutely key to rebuilding that trust.”

Investment Quorum chief executive Lee Rovertson says: “I am a huge fan of transpar- ency and clarity so I am broadly in favour of the proposals. However, I am worried that barely profitable platforms will struggle or just raise their charges to the detriment of all.”

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Comments

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  1. Why do those who argue for greater consumer choice not allow investors to invest without the need for an adviser ? This cozy relationship with advisers makes their holier than thou attitude appear a bit hypocritical.

    If an investor is to benefit from transparency then the option to deal direct has to be made a requirement for all wraps and platforms – without exception. Only then will the investing public have a real choice.

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