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Platform clock is ticking

Our duo give their views on the IMA’s controversial fund sector renaming and consider whether delays at the FSA will give platforms and IFAs enough time to make change

The panel

Patrick Connolly head of communications, AWD Chase de Vere
Nick Bamford chief executive, Informed Choice

The Investment Management Association’s decision to rename the cautious, balanced and active managed sectors as A, B and C as well as adding a new D sector, has been widely pilloried. What do you think of the IMA’s proposals? What should they be called?

Connolly: On the positive side, they have identified there is an issue with the current headings. The current headings are misleading and the IMA has recognised that is the case, although the new headings, A, B, C, and soon down the line D, give no guidance or clarification at all to investors and are likely to confuse them even more than the current headings.

I think the approach adopted by the Association of British Insurers is more reasonable, where they give the percentage of the likely equity exposure and something along those lines would be more sensible.

Bamford: As a firm, we do not like multi-asset funds, we would select a range of individual asset class funds to achieve the same goal. I think the change from balanced, cautious, active to A, B, C, D is a retrograde one.

My son Martin has a different view – he thinks it will force the consumer to think more carefully about what underpins the title, so has come at it with a positive spin. I think it is going to confuse the consumer even more but, one way or another, we would not use those funds anyway, we would create our own.

Last week, rating agency Moodys revised its rating for Greek government bonds down to Caa1, putting the chance of default at 50/50. Do you think the Greek government will default or be forced into a restructure? If so, when?

Connolly: It seems a very common view that in Greece, and also in Portugal and Ireland, the existing debt will have to be restructured. A lot of people are aware of the problems but at the moment very little action is being taken to remedy that. Will it need to be restructured? Yes, it will, and very possibly for Ireland and Portugal as well, and we would rather see decisive action sooner rather than later.

Bamford: Once you are on that downward, slippery slope, there is a good chance you going to default or not meet the terms of the original debt. Will the likes of Germany eventually get totally fed-up with this and is this a step towards the end of the single currency? I don’t know and think it is a case of wait and see what the outcome of the latest bailout is.

The FSA announced last week that it has delayed the publication of its platform paper until the third quarter of this year. Will the platforms and IFAs have sufficient time to get to grips with the FSA’s proposals if it decides to make any significant changes to the way wraps currently work?

Connolly: I don’t think the issue is so pressing for IFAs. From an IFA perspective, we are reasonably relaxed on the timeframes that are there. But the clock is ticking and the longer it is until platforms themselves are given guidance in terms of what they can and can not do, the bigger the likelihood they will not meet those timescales.

From a platform point of view, there must be concern that the longer this drags on without clarity, the bigger the risk that those timelines are going to be missed.

Bamford: I would imagine, from the platform provider perspective, they would rather have longer to get ready for any changes that are required of them.

IFAs tend to be fairly nimble and we can probably respond more quickly. It is not like we have to go and put huge amounts of money and effort into changing systems. But it would be good to know sooner what the regulator wants.

The one thing that rankles with us is the banning of cash rebates. Our understanding is the FSA has identified that some IFAs talk to clients in a way that is misleading, saying: “I am going to charge you 0.5 per cent as my review fee but look I have got you 0.5 per cent reduction on the cost of the funds so my cost to you is really nothing.”

When we submitted our response, we said cash rebates are a fantastic thing because they are an element of transparency.

We can use a platform and say Informed Choice charges 0.5 per cent, the platform charges 0.25 per cent, the weighted annual management charge from the funds we have selected is 0.4 per cent, so you can see what the annual management charge is.

If we then say, if you go direct you are paying an annual management charge of 1.5 or 1.75 per cent, the client can easily see the benefit of going through the platform.

But we need to get this thing done, let us get the feedback from the industry and give the platform providers a fighting chance of getting their systems in place by January 1, 2013.

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