FSCP: Ban all platform rebates

All platform rebates should be banned under a new remuneration structure subject to a separate timescale than RDR in order to improve consumer outcomes, according to the Financial Services Consumer Panel (FSCP).

A radical overhaul of current remuneration structures to eliminate bias and a requirement for platforms to draw up "living wills" are some of the proposals put forwards by the panel in its paper Implications of RDR Platform Proposals on Consumer Outcomests.

"In order to deliver the aims of the RDR in the platform market, the FSA should focus on delivering the foundation of a new remuneration structure that removes bias and enables the consumer to have a clear understanding of the total cost of investing," reads the paper.

It adds the platform market has inherited a number of "negative traits" from the wider industry, including a remuneration regime giving rise to bias and lack of clarity.

This has created a situation where the choice of product or fund is driven by the needs of market participants rather than consumers, according to the panel. 

As such it says the FSA should draw up a timetable - separate to the RDR deadline - for platforms to build a rebate-free remuneration regime which exclude bias or conflicts of interest.

In its long-awaited November consultation paper, the FSA made a u-turn when it decided not to go ahead with its proposed ban on fund manager rebates.

But the FSCP says such a move will not be in consumers' best interests. It says banning fund manager rebates would increase the likelihood of supermarkets offering low cost solutions such as ETFs and passive funds which otherwise would not be available due to low margins.

"The continuation of fund manager rebates may see a polarisation between the fund supermarkets and wrap platforms proposition with the former focusing on being an efficient and effective trading engine for mainstream funds and with the latter offering access to more funds and investment vehicles but charging more for the service for an average investor," it says.

The panel adds the November consultation paper does "not do enough to improve consumer outcomes" and says the FSA should review its proposals to avoid unintended consequences including a reduction in consumer choice.

It says the FSA needs to establish an environment where consumers and advisers determine which funds are available on platforms on the basis of suitability, performance and cost.

In a wide-ranging critique of the FSA's consultation paper, the panel says: "A number of the proposals in CP10/29 may reduce the choice offered to the consumer such as number of funds on a platform, the variety of investment vehicles, access to advice, choice of channels for buying investments and number of platforms in the market."

Elsewhere, it recommends a disclosure regime consisting of "short and sharp" messages and suggests platforms should have living wills in the event they cease trading.