So, the big question mark surrounding platform rebates has been answered and the result is a good one for investors. The FSA has been true to its principle of trying to ensure better outcomes for consumers and I believe the latest guidance will do exactly that.
The fact that platforms can continue to receive payments from fund groups will benefit the customers using those platforms with scale that are able to agree competitive fund management prices on their behalf.
We have been clear for some time that we intend to launch an unbundled charging structure and this will be in line with today’s guidance that rebates must be reinvested into the product, rather than paid into a client’s cash account. So the recent guidance causes us no concern but it is interesting to muse over what impact it will have on other platform models because this is a crucial consideration for any adviser when deciding which platforms to use.
The new guidance is not good news for those platforms who were assuming that their existing charging structures were already RDR ready. Those platforms that pass rebates back to the client’s cash account will not longer be able to do that so they have some fundamental changes to make. They are going to have to significantly adapt their processes and change the way they market their propositions. We expect that this will be a costly exercise and may put their commercial models under pressure.
This is probably the first significant piece of regulatory change these smaller platforms have had to cope with so it will be interesting to see if they all survive. On the day the platform paper was published we heard that Macquarie is to close its wrap service due to ’execution challenges and difficult business conditions’. I highly doubt they are the only new platform with these challenges.
It is now clear that bundled charging structures can continue. What is not so clear is whether they will be financially sustainable. They will be able to charge fund groups in return for the admin services they provide but the guidance makes it clear that this payment must be based on the cost of delivering administration services rather than the ability to pay. Currently this is fewer basis points than we believe to be the minimum required to sustain a platform that is going to offer advisers the investment solutions and financial planning tools that really add value to their customers and their businesses.
Bundled platforms will have to disclose the rebates they receive from fund groups but that is already the case under the Mifid rules. That aside, we support greater disclosure because it is vital that consumers understand how much they are paying and what they are paying it for. There should be clarity and consistency in disclosure of charges across all platforms to enable advisers and customers to compare them on a like for like basis.
It is interesting to note that the FSA has recognised that there are valid concerns surrounding adviser firms having a financial interest in a platform and that this is an area they will ’continue to monitor closely’. Advisers in this position will have to decide whether the work required to manage this conflict of interests is worth the notional gain they might make on their investment in the platform.
Overall I believe the value platforms deliver to customers in terms of the investment tools and solutions they offer is becoming better understood and this will continue. As a result, demand for unbundled charges will grow because investors will increasingly want to understand how they are benefiting from the bulk buying power of their platform and whether they are paying a fair price for the benefits the platform delivers. The latest guidance from the FSA will shape the market in this direction and will further expedite the growth of platforms.
Skandia UK chief executive Peter Mann