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The 10 biggest platform issues for 2014

Clean share classes are top of the list of the challenges for platforms but they must also cope with downward pressure on charges, the rise of execution-only and navigate changing regulation.

Ashby-Tobin-Pinsent Masons-2014

This will be the year when order will arise from the chaos caused by regulatory developments in the platforms landscape over the last two years. 

Predictions like these are best made at the start of the year, of course, to allow nearly 12 full months to forget the ones that go wrong.

Whether this one holds up, it is clear there are a number of developing areas coming to a head that could provide further challenges and perhaps some clarity in the platforms world. There will also be decisions for platforms to make in developing (or consolidating) their propositions in a highly competitive environment.

In that context, here are 10 top regulatory and legal issues for platforms in 2014.

The transfer to clean share classes

This issue has polarised the platform industry, frequently along lines set by individual platform’s propositional constraints. Following the publication of FCA paper PS13/1 and some further guidance, some firms have already acted decisively. All platforms need to be settled on their charging approach and remove any reliance on rebates for a fast-approaching April deadline.

Planning for the legacy deadline of 2016 is also needed. Firms will need to be ready either for bulk transfers, or to allow customers to move as and when their investments change in line with the FCA guidance (that was subject to recent consultation). Adviser firms that are not using, or moving entirely to, a fee-based model will also want to understand any impact on existing payments to them through legacy rebates.

Variations in overall fund charges between clean and legacy share classes have muddied the waters for bulk transfers. Potential customer detriment in moving from legacy to clean share classes is still very much a live issue that needs to be addressed by firms before any transfer takes place.

Platform charging

Charging pressures for platforms are coming from all sides, from simple commercial competition to the regulatory introduction of the ‘platform charge’ on 6 April. This situation is fuelling some innovation on pricing, as well as price reductions. Platforms are also trying to demonstrate the quality of service behind their charges. 

The regulations coming into force in April draw the charging lines more clearly between platform providers and fund managers and the winners and losers will become clearer as the year progresses. Any arrangements with fund providers or involving intermediaries (taking particularly into account further regulatory focus on inducements) need to be carefully thought through.

Speculation over the possible application of VAT to platform fees has also caused some alarm and it is hoped this can be clarified quickly.


Advisers who want to combine independent advice with the convenience of using a single platform, or a small number of them, may have to work hard to demonstrate continued independence. Recent high-profile network moves to restricted models have served to highlight the challenge this presents.

There may be room for innovation by using a type of ‘platform of platforms’ approach to maintain independence, provided that customers can be clear who their relevant provider is. If a restricted model is preferred, appropriate agreements will be needed with all chosen platform and product providers to make clear distribution channels and responsibilities.

Intermediation and the direct route

The growth of D2C platforms – bridging, in part, the ‘advice gap’ for mass-market investors following the RDR – is not incompatible with the relationship between platform and adviser firms.

Firms recognise that customers currently falling into the ‘gap’ may not need just one solution throughout all phases of their investment life. Platforms and adviser firms wanting to join forces on execution-only should put in place clear agreements to establish the terms of distribution to their joint customers.

Direct guidance or advice?

D2C platform propositions are attracting increasing numbers of retail customers. The vexed question of how much guidance can be provided to execution-only customers without it becoming regulated advice is exercising many firms. 

Considerable hope is being placed by platforms in the FCA’s current review of non-advised business to help clarify the position. On the positive side, the regulator appears to recognise there is an advice gap.

It is not yet clear though how, or if, the regulator will act. As the FCA does not control all of the rules applying to regulated advice, however, there is a danger of any proposals on execution-only falling short of the answer firms are waiting for. Firms will still need to find an appropriate route on the right side of the grey line between guidance and advice.

Wrapper range

Some platform firms are expanding the range of product wrappers offered on their platforms, in some cases moving into non-investment protection products. For firms considering non-investment products, different regulatory rules apply to some of these products, which may affect generic literature and processes. 

Platforms wanting to add product wrappers provided by third parties need to consider how to integrate them on platform, either directly or by allowing for investment through the third party product into the platform.

Aside from process capabilities and requirements, the platform and third party providers will need to agree responsibilities for investments (including any restrictions) and for customer relations. Customers and advisers will need clarity on their legal relationships with both the platform service provider and the third party wrapper provider. Literature and terms of business should explain these relationships clearly and avoid contradiction.

Investment range

A trend towards concentration of investment in smaller numbers of funds may lead to greater use of model portfolios and risk banding. For execution-only propositions, the risks of inadvertent regulated advice must be addressed in setting up any arrangements that might help customers move into particular investments. For model portfolios provided by third parties, responsibility to customers for those portfolios must also be clear in both platform and adviser terms with the third parties. 

Platforms may also want to broaden the type of investments they offer to include, for example, ETFs or fixed-term deposits, or to simplify how such investments already on platform can be accessed. Investment agreements used for the supply of different investments will need bespoke provisions according to the type of investment and provider.

More customers

For firms expanding their customer base, to include trustees or corporate clients for example, different types of client will usually need varied terms and literature, as well as flexible processes. 

Expansion overseas is likely to be tempting for an online platform, perhaps making use of EU freedom of services legislation. Any firm wishing to extend its business to other countries should tread with care and treat each jurisdiction separately, even within the EU. Local regulators will almost certainly expect rules applying to local firms to apply equally to firms passporting into their jurisdiction.

In-house or outsource

For some existing platforms, as well as new entrants, the cost of proprietary systems may become harder to justify as competition on platform charges intensifies. It may be possible to achieve cost efficiencies through outsourcing some platform processes, areas such as custody or even entire platform models. For this kind of outsourcing, robust commercial arrangements will be needed and material outsourcing requirements are likely to apply. Contractual provisions should also allow for the fact that ultimate regulatory responsibility cannot be transferred. 

The regulator will want to be sure that sufficient control is in place regarding regulated activities and customer protection and that, for example, client money processes sit with an appropriate firm.

New rules?

There will always be areas where new rules arise. For example, the outcome of the FCA’s review of non-advised business might lead to new rules and the FCA has already referred to its impatience with the speed of firms’ own progress on re-registration.

At an EU level, we can expect further focus on IMD2, MiFID2 and the proposed Prips regulation. Following the RDR, the UK is ahead of Europe in many areas covered by these proposals but it is not yet clear how European requirements might work alongside the existing UK regulatory regime. The extent of application of appropriateness tests for execution-only business and KID disclosure requirements are two examples of rules that may not be designed in a way that complements the UK position.

(And one more for luck)


There is talk of consolidation between platforms but this is unlikely to be through straightforward acquisition alone as it will be unattractive for a provider firm to have two similar platforms to look after and pay for. Transferring business between platforms that are set up differently using different systems will have its challenges and costs, as the requirements will depend on the platforms involved. 

Initial steps for a platform firm looking to acquire business in bulk from another platform will involve an assessment of potential customer detriment, much as with the transfer to clean share classes. The acquiring firm will also need to establish how in-specie transfers can be carried out including, crucially, whether the same investments can be made available on the transferee platform. For advised business, advisers will also need to be convinced that the transfer is the right result for their customers if the business is to remain for long in its new home. 

Tobin Ashby is legal director for life and wealth management at Pinsent Masons



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There are 3 comments at the moment, we would love to hear your opinion too.

  1. I must confess to being unfamiliar with what “the” platform charge means, though I recall Rory Percival having stated only a month or two back that “the FCA is not a price regulator”? So just what is ” the regulatory introduction of the ‘platform charge’ [to be introduced] on 6 April”?

  2. Julian I think the piece refers to the abolition of platform rebates and what were “free” platforms in the past (FundsNetwork, Cofunds, Skandia) have now introduced a blanket charge for use of the platform. Clear as mud?

  3. As ever we live in different worlds. For me the two most important factors for a platform are:

    1. If the client decides that they wish the funds under management charge taken from the investments then it is imperative that the platform can accommodate pro rata sell downs. The same applies to their own charges. It is an absolute nonsense taking the charge from the largest fund or the income.
    2. The largest possible range of Unit Trusts and OEICS. Why the writer thinks a smaller choice is a good idea is beyond me. Model Portfolios? Apart from’ shoehorning’ this is investment approach is for morons. Does anyone have any two clients that are exactly alike? This is Primark investing instead of Savile Row. Isn’t everyone entitled to a bespoke portfolio?
    As to his other assertions. I have never understood the merit for the client in shoving as much as possible on a Wrap. (Although I well understand why an adviser might think it a good idea – charges?)
    The attraction of an Investment Trust is its low price. It is quoted daily a valuation isn’t difficult. Same applies to ETFs, but in this case we can’t buy these directly so the whole topic of ETFs is another issue and a bit of a red herring. In the last analysis it boils down to a simple question – can the client buy (say an OEIC) more cheaply going direct ? In the case of some products held on a wrap the answer is undoubtedly yes. I have seen some advisers actually putting cash accounts in a wrap. That to be is entirely indefensible. The wrap charge alone kicks the hell out of it – never mind any charge the adviser makes in addition.
    Distribution – well if a platform wants to go D2C then they are making themselves a lot less attractive to advisers. As far as advisers are concerned I wouldn’t have thought too many use only one platform.
    Yes charges are important as are clean shares, but ‘unclean’ shares have usually the marginal difference rebated to the clients – so why all the agonies on this?
    There is far too much attention paid to share classes when there is so much else wrong in financial services. With the advent of the closure of legacy trail for example, what moves have been made to ensure that now this amount is not being paid to the adviser that the client can benefit and not that the provider can make windfall profits?

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