RDR Platforms Paper

 

The FSA Platforms Paper 1st August 2011


‘O Lord please make me good………….but just not today!

The Highlights

 

  • Bundled pricing is going - Payments by product providers to platforms will be banned but no implementation date has been set except that it will be after December 20012 and further analysis
  • Cash rebates from product providers to clients will be banned but no implementation date has been set except that it will be after December 20012 and further analysis
  • Execution-only platforms can continue to receive fees or commission from a third-party but will have to disclose them
  • IFAs can use one platform but have to be careful and need to look off platform also

Our View


With just 17 months to RDR implementation it is unlikely that platforms would have enough time to make the required changes to their infrastructure to accommodate the removal of rebates so it is no surprise that the FSA has delayed implementing the ban. What is disappointing however is the failure to put a date on its final implementation. Nothing works so well as a deadline and leaving a loose end for such a crucial industry/consumer tool is unhelpful in the extreme.

Whatever is to be done needs to be done with some haste, platforms are still relatively young and therefore flexibility still exists. Assets on platforms have grown enormously over the last few years to just under £140bn but this is still a drop in the ocean when compared with the size of the UK long term savings market. Changes to the remuneration structure may be difficult but should be introduced soonest as it will become harder as platforms grow. There is an opportunity to develop platforms in a way that does not simply replicate the current financial services market but actively removes the undesirable traits that currently exist in financial services.

Once we have all absorbed the consequences of the planned changes a more important message we feel is contained in the FSA’s attitude. They have come under significant pressure from IFAs, providers, the Treasury Select Committee et al on RDRs impact and timetable AND have been subjected to suggestions that MIFID II and Europe would scupper them. Their response has been to not only sustain their views expressed in the March paper but have begun to expand their desire to truly remove commission in all its guises from the market. Now whether they have got it right in substance, focus or emphasis is a subject for debate but the direction of travel seems truly set and the issue of XO business is surely on their radar. So what are we to make of this heart hardening?

Well anyone who has harboured the view that the changes coming in December 2012 and beyond can be worked round and it will be business as usual has serious delusional issues. The growth in consumer centric regulation from Europe allied to a clear regulators desire for transparency means our industry will look remarkably different within 2 years and all should prepare to be sure they are still relevant.

Immediate Market Comment


Gary Shaughnessy, UK managing director at Fidelity, said: "Its conclusions which in the main will lead to more consultation are not good for consumers, not good for advisers and not good for the industry."


Ed Dymott, head of fund partners at Fidelity, said the FSA had indicated there would be further consultation on legacy business as well as the consultation on cash rebates. He said: "The only conclusion the FSA has reached is relay one of inconclusion. None of the things that have come out of today are new issues, the FSA has been deliberating for over two years. The more time and effort we spend meeting regulatory requirements the less time the industry is spending on innovation."


Hugo Thorman, managing director at Ascentric, has applauded the FSA for holding off on the implementation of a ban on cash rebates.


"The FSA should be credited for listening as there are consequences that haven’t been fully understood by ourselves or by the regulator.


The FSA said they were against cash rebates clearly in the paper but they also said they will look closer as to what the full implications are as there are many conflicting bits of information
."


Gordon Greig, platform director at Aegon, said the lack of clarity on cash rebates in the platform paper made it "very hard" for the industry to ready itself for the RDR.


"The FSA's decision to carry out further research highlights the real difficulty of squaring an in principle approach with one that will benefit consumers in practice. A complete ban on cash rebates would have been highly detrimental to both platform providers and consumers.


The FSA appears to accept this, and we hope it will now work with the industry to develop a solution that works for all parties.


The FSA is worried that cash rebates encourages advisers matching off rebates with the adviser charge. I haven't seen this to date but I think it is manageable. The industry will ensure that that doesn’t happen. I hope and believe that they will see no reason to introduce cash rebates."


Acknowledgments FT Adviser

 

David Ferguson, chief executive of Nucleus, said the move would help eradicate bias in the market.
'It’s a big, big, big step forward and we hugely welcome that,’ he said. ‘They [fund supermarkets] are going to have to disclose these payments which go on right now, you have market which is infused with bias and this is going to stop that and we think that’s good.’


They [fund supermarkets] lobbied very hard to get to where they were and it’s almost like the FSA started out with a view and they backed off that view and performed a U-turn in November and then thought again and said what we said in the first place was right.'


The brave thing to do was say they got it wrong in November and allowed themselves to be manipulated through the summer [of 2010] and they appear to have realised that.’

 

Malcolm Murray ,Transact marketing manager, said the U-turn was a devastating blow to the fund supermarket business model.


The fact that they are banning fund manager payments all together blows the fund supermarket thing out of the water,’ he said.


That’s interesting because they felt they got a concession in the last consultation paper, that they would be allowed to charge for services they provided, but it seems that is finished altogether.’

 

Acknowledgments New Model Adviser