Following much debate, speculation and frenzied lobbying by the legacy fund supermarkets the FSA finally released its platform consultation paper (CP10/29) this morning and I am pleased to report that for progressive people the outcome looks good and is ultimately a triumph for the greater transparency we have campaigned for since inception.
The big, big, big news is the requirement for fund supermarkets to disclose how much they are paid by asset managers. While the enthusiasm which greeted DP10/2 in March may be moderately tempered this announcement confirms we are light years ahead of where we were at, say, the beginning of this year. For too long the inner workings of where client money ends up have been kept away from advisers and their clients.
The FSA’s proposal means the truth will finally emerge and when it does I expect to see a few eyebrows being raised. I understand we’ll need to wait until February for more detail on how supermarkets will be required to make these disclosures and I would only urge the FSA to be as thorough as possible – after all we have more than 30 years of non-disclosure to catch up on!
Next up is compulsory platform-to-platform re-registration. Restated as in CP10/2. More than anyone else Nucleus has campaigned for this change and is a further kick in the teeth for those platforms that have dithered in supporting the free movement of client assets between platforms. Key to the success of this will be making sure that all parties work together to ensure that the systems infrastructure is appropriate and in place in good time. It seems there is enough work going on in the background to suggest this industry-wide project will be delivered in time.
I love the section around shelf-space fees and bias – it will no longer be possible for fund supermarkets to entice clients into those funds which best suit the fund supermarket (ie those that pay the greatest kickback). A huge step forward in cleaning up the kind of malpractice that has led the financial services sector en mass to enjoy the client trust it deserves.
The FSA has also provided much welcomed clarity around it being ok for IFAs to both own shares in a platform as well as use a single platform for the majority of clients, provided the circumstances are right. I hope this finally brings to an end all the unhelpful confusing messages to the contrary and allow advisers to run their businesses in the most efficient and effective way possible.
As a rather second order issue we are confused as to why life companies and fund supermarkets can continue to receive cash rebates but wrap clients cannot. While this move remains workable, it looks rather inelegant and in some circumstances will result in clients having to sell assets to meet adviser and platform fees. This in turn might lead to unavoidable tax charges which would be undesirable and presumably fall into the ‘unintended consequence’ category.
Particularly confusing is the FSA’s rationale for the move – the regulator asserts that this approach has been adopted because there is evidence that IFAs have been guilty of pegging their annual fee to the rebate to be received and have then claimed that their advice is effectively free. While I can see the angle I can honestly say that in the 10 years since wrap platforms emerged I have never encountered a situation of this nature and indeed have never even heard the concept discussed. It would be helpful to see some supporting analysis.
Before signing off I was fascinated by the assertion that on balance fund supermarkets are administrators rather than distributors. In the former case fund groups with greater volumes being ‘administered’ would presumably benefit from a volume discount. In the latter fund groups with more assets on the platform would pay more. I can only hazard a guess as to what happens in reality.
David Ferguson is chief executive of Nucleus