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The FSA remains undecided over how to apply its adviser charging rules to platforms less than three months before a planned Policy Statement and amid growing calls for the total unbundling of costs.
According to sources invited by the regulator to discuss platform charges, the FSA is concerned by what it calls the "significant variation in the nature and transparency of platform charges".
However, it appears unsure how to address the issue despite many in the platform industry believing unbundling of charges is the likely outcome.
A Policy Statement on adviser charging - designed to remove the potential for product or provider bias from the advice process and a central tenet of the RDR - is due for publication before the end of March.
According to a study conducted by financial consultancy CWC Research, advisers are in favour of overt platform charges.
However, some question whether a detailed costs breakdown would be beneficial to consumers.
Pete Chadborn, who runs CBK Colchester, says: "There are two sides to this: Yes, platform charges should be as transparent as possible, because that is what advisers and their clients will expect.
"But they also need to be easy to understand. If platforms are forced to unbundle every cost, it will simply add another tier of complexity to the advice process."
David Norman, founder of TCF Fund Managers, says mutual funds' portfolio transaction costs are an example of charges often "hidden" from the end consumer.
In its first RDR paper, published in June 2007, the FSA announced one of its key objectives would be to "reduce the conflicts of interest inherent in remuneration practices and improve transparency of the cost of all advisory services".
It said although some platforms charge investors an explicit fee, later passing on any product discounts or rebates, others operate a bundled, or ‘supermarket-style', pricing system. In the latter case, it said, the share of product charges paid to the platform provider is "not generally visible" to advisers or their customers.
Malcolm Murray, marketing director at platform Transact, says: "In our view it [platform costs] must be unbundled. If the charges aren't completely transparent, it can take five or 10 years for the client to discover what the true cost to them has been."
But Clive Waller, founder of CWC Research, says there is a "genuine argument" for having bundled costs.
"If you told clients every single cost behind an investment sale they will have an overload of information," he says. "But what they have to know is the total cost - how much of their investment is actually invested."
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THe FSA don't understand...
I can see both sides of the arguement here (and of course there has to be two sides) however I can see absolutely no benefit in unbundling charges and the complexities that will create for clients (and advisers). We use the SIS platform with nominated trail/ongoing fee and have done so for some time. This we find very straightforward to explain to clients as we quote the net AMC of the fund (i.e. after deducting standard trail commission), the fund's additional expenses and the funds (net) TER. To this we then ADD our annual servicing charge. I personally have no interest in how much of the remaining AMC SIS receive from each fund group and neither do any of my clients. From an RDR point of view, we take the same initial and annual charge irrespective of tax wrapper, asset type or fund, so there is absolutely no possible financial bias between, cash, bonds, trackers or active management... As the meerkat says "simples!" What benefit would a client derive from me having to break down each fund being used to show the AMC kept by the fund house and that passed to SIS? In a word: NONE The overall charges would be the same and the resultant fund performance would be the same.
Posted by: You must be joking
Unconfused
The FSA sadly would not see the charges if the subject were naked, let alone transparent. The real issue is whether the client is receiving service and fair treatment at a fair price. The FSA must recognise that poor and/or costly service loses clients. It must therefore allow intermediaries (trust is not a word in their glossary) to do their job and decide which is the best platform for their client base. The FSA should monitor results. Like buying cheese, nobody wants to know the price of every cheese,clients know that some is better and some is cheaper but in the end they will make the decision as to what is value. Say cheese FSA and you will be happy!
Posted by: Andrew Moore
FINANCIAL SHAMBLES ASSOCIATION
In years gone by, we have been told to give clients a raft of paperwork and information, then we apparently gave them too little, then too much again. Fact-finds used to change like people change their underwear - and then of course disclosure in 1995, and a whole load more info, plus hand-written illustrations (Pru) and now we are talking about 'un-bundling'. The clients are only interested in the total cost and what they get for their money. I give them the cost of the product and the cost of the advice. That's it. With reference to the article on this website, perhaps people would be more interested in the transparency or the 'un-bundling' of the EXPENSES claimed by the FSA?.
Posted by: Keith Jayne
re you must be joking 17.06 21/1/10
"I personally have no interest in how much of the remaining AMC SIS receive from each fund group and neither do any of my clients". By "having no interest" in the full picture (because rebates to SIS are probably available to the client elsewhere), you are potentially denying finding your clients a cheaper way of holding the same generic wrappers and the same portfolios - surely one of the functions as an independent adviser IS to take your client's TOTAL costs into account? By using SIS all the time, you may be missing out on reducing your clients costs. If you have another reason for advising a higher cost option thats fine if it's worth it, but surely you have to know the differences to determine whether the other factors ARE worth it??
Posted by: Paul Harding
Charge Comparison is easy
Charge Comparison is easy...for professionals. It doesn't matter how complicated the charge structure, the effect on the client can be easily quantified and totalled as a single number for comparison - the RIY. This will vary not only between platforms but also substantially between clients depending on how the platform is used - which is why independent advise is needed. Unbundled pricing is essential in the advised market so that competition pressure can be brought to bear on the component parts, by the adviser. Bundled pricing also has a market, for the unadvised and direct BtoC business.
Posted by: Stan Kirk
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Unbogling
Unless charges are unbundled the IFA doesn't fully know what they are. We looked at the Standard Life Platform and found that Standard couldn't answer some of our questions on charges, discounts, rebates and which party to the arrangement paid or received what. So we went for Nucleus which we found to be the most transparent (and the cheapest)
Posted by: graham worrall