Overall we are very supportive of the direction of travel in the FSA’s platform consultation. The confirmation that the FSA remains minded to ban cash rebates is good news because whilst we would have been ready to implement either cash or unit rebates we have always firmly believed that unit rebates are the best option for customers.
Investors use platforms to invest in funds, not cash, so it follows that a discount that is negotiated by their platform operator should be credited back into the fund rather than the cash account.
From a customer perspective cash rebates could create confusion around exactly how much they are paying for both the platform and advice. This is because the platform charge and advice costs can be automatically deducted from their cash account which is funded by rebates rather than the investor.
Even when fully disclosed, there remains a real possibility that investors could think their platform and advice costs are paid for by the rebates they receive. This is much closer to the current commission regime than it is to the new adviser charging regime.
The FSA’s desire to ban provider payments to platforms causes no issues for us and I can understand the thought process and rationale behind it. As part of the Retail Distribution Review and in line with adviser charging, the platform market has an opportunity to deliver transparent and understandable charging structures to investors.
Our view is that this will best be delivered by fully unbundled charging structures that separate the costs for fund management, platform and financial advice.
We are already well down the road in developing a new charging structure that will pass rebates in full back to customers and facilitate transparent adviser charging.
The preparatory work we have done gives us the confidence that we can accommodate unit rebates if necessary, whereas it seems that other platforms only have one operating model, either based on a bundled charging structure or cash rebates, and will have to invest heavily to be able to accommodate unit rebates, thus potentially limiting further innovation.
Despite the FSA’s intention, there are still many people with a vested interest campaigning for the ban on cash rebates to be scrapped and I hope the FSA remains firm and proceeds with its desired outcome in the final rules.
This will be in the best interests of customers and it is important that this prevails over the short term interests of platform operators if the platform market is going to serve the needs of investors over the long term.
Peter Mann is chief executive of Skandia UK