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Platform reforms inconsistent with RDR, says Cofunds

Cofunds has criticised the reforms outlined in the FSA’s discussion paper on platforms, saying the proposed rule changes represent a shift away from the retail distribution review’s core objectives.

The fund supermarket has published a White Paper entitled “RDR and fit for purpose platforms” which looks to trigger further debate around the issues raised in the FSA’s DP10/2 discussion paper.

The discussion period for DP10/2 ended on May 26, and the FSA had planned to publish a consultation paper in the summer. Cofunds CEO Brett Williams says that the FSA says this is now likely to come out in September instead to allow the FSA more time to process the feedback it received.

The Cofunds White Paper says: “If the proposed reforms are implemented, Cofunds is highly sceptical that the FSA will successfully achieve its outcomes for RDR – indeed, we remain unclear about whether the desired outcomes have now changed and more fundamentally what specific problems DP10/2 is looking to address.”

Williams says: “We agree with the wider RDR objectives of transparency and customer engagement. But we think the FSA has moved away from those with the latest discussion paper.”

On the proposed plans to ban rebates and move towards an unbundled pricing structure across all platforms, Williams says there is no evidence of any bias caused by operating a bundled or unbundled pricing structure.

Cofunds plans to offer both bundled and unbundled pricing. Fidelity FundsNetwork and Skandia have also made this commitment.

Williams says: “It should be a test of suitability. The FSA should take that into account rather than use a sledgehammer to crack a nut.

“I don’t think the FSA need to legislate for something that is being driven by the market anyway.

“The biggest issue for me is that out of this process we don’t make it more expensive and more complicated for the end investor.”

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Comments

There are 19 comments at the moment, we would love to hear your opinion too.

  1. Here here, I agree with Cofunds.

    The effect on the end consumer should be the most important thing, as they are the clients who own the money, not the IFA or product provider.

    Platforms offer significant advantages direct to clients (reduced admin, consolidated tax vouchers, online access etc) as well as their adviser and it seems to me that making full unbundling mandatory and banning rebates would actually detriment the clients rather than benefit them as additional charges are likely to be levied on them.

    Fees for advice make total sense (I use a fixed fee basis based on a time estimate and hourly rate), but unbundling product provider costs for products such as platforms seems less sensible. When was the last time you saw a label in a shop telling you the cost price to the retailer and how their margin breaks down?

  2. It’s getting silly now – next the FSA will be telling us what colour the brochures should be.

    This is not something that needs the intervention of the regulator. It doesn’t matter how the charge is made up, all that matters is that the client knows what the total cost is going to be and what his adviser is receiving.

  3. John Blackmore 16th June 2010 at 2:53 pm

    you really can’t blame the wrap providers for pushing the unbundled argument. Being more expensive they have to do what every they can to hurt the competition BUT it seems strange that the FSA have been so easily taken in.

    Yes the do have a track record of getting this expensively wrong but it is still difficult to understand their view that even if the outcome is more expensive ( which it clearly would be) the investor will be better off ?

    Transparency can easily be achieved without adding an extra 0.X% pa to the cost of funds.

  4. You must be joking 16th June 2010 at 3:13 pm

    Fully agree with Brett here.

    The FSA appear to only be listening to the “new players” in the market, who can’t be as competitive as the “old firm” of Skandia, CoFunds, Fundsnetwork and Hargeaves due to their economies of scale.

    Its bit like them saying “It’s not fair, we can’t compete on charges so lets make everyone more expensive!”

    Whilst competition and new entrants are good for the market, this shouldn’t be at the expense of additional charges – WHICH THERE WILL BE – for the customer which will be as a direct result of the FSA’s misguided approach.

    Carry out a cost analysis for any portfolio of collectives, at any level of investment, and Skandia, CoFunds or FN will come out the most competitive. The unbundled offerings WILL be more expensive…

    A good outcome or customers? Not bloody likely!!!!

  5. The FSA also do not appear to be comparing like with like. A platform such as Cofunds is relatively simple and will appeal to clients who want a cheap simple solution. Unbundling makes it complex and more expensive.

    Unbundling is appropriate on full wraps like Transact as there is no other way the charges can work. This is a far more expensive and complex product and the end user is very different.

  6. No point in talking common sense – the FSA knows best – ha, ha.

  7. David Ferguson 16th June 2010 at 4:47 pm

    Rather tied up today so will be unable to respond but I thought a hard fact might be useful:

    The average amount paid by a Nucleus client for the platform (inc all tax wrapper charges) and asset management is 0.86% (ie excluding advice fee). For the record Nucleus runs on a fully transparent, unbundled model and this data was recorded last week.

  8. Having just looked at an SJP recommendation based on their investment approach, which overall barely exceeds the respective sector average, to consolidate 4 PPPs into their more expensive contract with 6 year exit penalties (starting at 6%) and two free switches p.a. I would have thought the FSA should have more important things to look into.

  9. Nice to see plenty of informed comment, as usual! 🙁

  10. You must be joking 16th June 2010 at 6:52 pm

    Hi David

    I know we still haven’t managed to actually have a conversation, but you do have my email address.

    I’d be very interested to see your analysis/calculations referred to above.

    Many thanks

    YMBJ

  11. I am a consumer and CEO of non-FS business.

    I would make two comments.

    1. When will the FS industry realise that until it comes completely clean and transparent with all its charges it will never ever restore trust or confidence – I read in a recent FT piece that more investors are going down the DIY route…I wonder why?

    2. In the world of direct equity trading, platforms are clear, open, transparent and very low cost – because they compete on prices that customers can see. As a former fund Supermarket customer this bundled pricing model stinks, is failing to drive prices down, makes me assume there are some back handers between platforms and managers/advisers (otherwise you would explain the charges to me?) and as for service is about as good as an old fashioned with profit policy.

    The next logical step is for FSA/CPA to ban all commission (legacy and new business) from say 2017.

    Gets my vote!

    PS Sorry if this an industry only blog,

  12. I am sick and tired of hearing the same old desperate arguments by these platforms saying that it will lead to an increase in cost to the user. Yes Brett, if you decide to pass the cost on to the consumer – not everyone will do that and you assume that the current market participants remain the same and people will still use Cofunds if your price goes up. There are, and will continue to be, cheaper alternatives.

    I would like to see specific examples on how the cost will go up. It is a weird brand of economics where a transparent, competitive market leads to higher prices!

    You must be joking – I can only assume you either work for a product provider or you have fallen on this website by accident and actually work in a different industry.

  13. Hurrah/hallelujah/etc for the consumer comment!

    And sorry YMBJ, I’m conscious we haven’t spoken but it’s been a busy wee spell for me. Will definitely try to make contact next week…

  14. I don’t know where the “unbundled platforms are more expensive” crowd get their figures from – I use Nucleus & it compares favourably with other bundled structures. Wrap admin charge, fund AMC & adviser fee – 3 charges, easy to see & very clear for the client. The intangibles (i.e. costs of switching funds on the platform, cost of switching tax wrapper on the platform, such as unwrapped OEIC to ISA etc) are never mentioned.

    For those criticising wraps – they may be right for some advisers, traditional platforms for others. Please stop telling us we are wrong just because those of us using the likes of Nucles don’t do the same as you.

  15. You must be joking 17th June 2010 at 12:58 pm

    Hi David

    I look forward to it (the conversation). Would still like to see your figures referred to previously though!

    To “the consumer” if you’d like to receive our investment guide, along with full details of the costs made for running our portfolios, please provide a means of me getting in touch.

    YMBJ

  16. Confused Customer 17th June 2010 at 1:02 pm

    Please don’t unbundle anything at all. The only industry that does this is the cheap flight one. I always think I’m getting a good deal but then I have to add everything up and see I’m paying a fortune. Just tell me exactly how much I pay in total every year (I don’t care who takes what, just as I don’t when I buy a car etc). I will then shop around and get the best price knowing I can compare on a total cost/like for like basis.

  17. You must be joking 17th June 2010 at 1:14 pm

    Mister Maker

    Wrong on both “guesses” I’m afraid.

    24 years as an IFA
    50 actively managed portfolios
    10 passively managed portfolios
    10 standard service propositions
    full adviser charging model (no commission)
    200 clients
    80 million under management

    YMBJ

  18. Thanks for the breakdown YMBJ – how many standard service propositions does it take to become non-standard?

  19. You must be joking 18th June 2010 at 9:32 am

    Mister Maker

    Undoubtedly you will have read all the FSA papers on TCF, RDR and platforms, so you will be aware that the FSA expect at least some sort of segmentation and the option for clients to access a low cost alternative.

    We therefore offer the following:

    Low Cost (fund and product TER of 0.48%) asset allocated portfolios

    Full Cost (fund and product TER of 1.25%) asset allocated portfolios

    Both of these can be offered on 3 basis:

    Transactional – no ongoing advice/charges
    Advisory – annual review etc and charges accordingly
    Advisory – quarterly review and charged accordingly

    Then we have bespoke arrangements for larger clients

    And then of course service propositions for clients with existing products…

    YMBJ

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