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Topics: FSA| Skandia| Cofunds| FundsNetwork| Schroders| consultation paper| Brett Williams| RDR
The FSA could be forced into a major U-turn on platform regulation as the UK’s big three providers, with over 80% of total assets, labeled its proposals as “unworkable” in responses to the Discussion Paper.
Following the closure of its discussion period this week, the regulator aims to release a Policy Statement on platforms by the end of the year.
However, the weight of lobbying against its current preferred options could see a major overhaul of its proposals over the summer.
A main bone of contention is the FSA plan to end fund manager rebates to platforms, which would require a shake-up of current product charging structures on the main platforms.
Skandia, FundsNetwork and Cofunds – the UK’s dominant platforms, administering £85bn – warn this would prove confusing and costly to consumers and could even undermine the main aims of the RDR.
In their submissions to the FSA this week, even smaller wrap providers who agree with ending fund manager rebates in principle say in practice there would be huge upheaval for the end consumer.
“If the changes to pricing go through, as they have stated is their preference, there will inevitably be an increase in price to the end customer and there will be complete confusion,” Cofunds CEO Brett Williams says.
“There is broad agreement on that with almost everybody we have spoken to.”
Williams says the FSA has been receptive to a number of contentious points in the Discussion Paper.
“From the conversations I have been having with the FSA, I think they are more aware of the potential consequences of this change,” he adds.
“They understand there are issues around getting rid of bundled pricing and they understand having a distinction between rebates on platforms and rebates on life companies is probably not helpful to the client.
“The way it is currently written is going to cause confusion, especially the fact life companies can get rebates, but platforms cannot. One of the problems is the definition of a platform. Platform is a loose term which is used to describe many things.”
Skandia also contends banning platform rebates completely, even if they are passed back to the customer, will remove “healthy market forces” from the fund management industry.
“The current rebate mechanism ensures platforms are able to agree competitive fund management prices with fund groups on behalf of consumers.
“This enables investors to benefit from platform services and financial advice for the same price as fund management alone if funds are purchased off platform,” it says.
“It is difficult to see how removal of this mechanism and the benefits it delivers to retail investors is going to improve outcomes for consumers.
“It is more likely to drive up costs for consumers of using platforms, regardless of their current charging structure.”
Peter Hicks, head of UK retail at FundsNetwork, says: “We don’t have to scrap the bundled pricing model, all we need to do is put standards which will increase the disclosure and transparency on each of the models and let the adviser and client decide what proposition is best for their individual circumstances.
“If we were to scrap bundled it will in general increase the costs and confusion for end clients.”
Fund groups are also concerned about increased complexity and costs if provider rebates are outlawed, as they would have to introduce numerous share classes to accommodate varying arrangements with different platforms.
The groups also believe there could be difficulties in offering special fund deals to consumers, for example during the ISA season, as the administrative burden of issuing new share classes for every arrangement would be too great.
Williams adds: “Platforms could demand different share classes depending on their size and scale, so how will you do re-registration if platforms have different share classes?”
Schroders’ managing director of UK intermediary Robin Stoakley says the group anticipates adding at least another one or two share classes to the majority of its funds.
“If the proposals go through, it could mean we offer different share classes to different platforms, depending on scale of distribution for example,” he says.
The FSA aims to release a Consultation Paper on platform regulation over the summer with the final rules to come at the end of the year.
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FSA lacks reality
Lets face it, the FSA has, in it's persuit of it's aims for clarity on charges, lost sight of it's original aim which was to benefit the end user, the investor, in much the same way as it's never ending and increasing Regulatory demands upon advisers with TCF and RDR. When is the FSA ever going to take stock of the realities of what it is doing. The setting up endless ridulous rules are in reality like Communism, a great aspiration, but unrealistic and unacheivable in practice to the detriment of the people it was meant to benefit.
Posted by: Chris Rule
'unworkable' platform proposals
If we hadn't already seen over the past few years just how inept and incompetent the FSA has proven itself to be, then this latest fiasco concerning the unbundling of platform rebates would be hard to believe. Instead, this totally out of touch organization, with massive power and no understanding of the ramifications of its various knee-jerk ideas (until people in the industry bring the bloody obvious to their attention) continue to rule over us. It is disgusting that these overpaid, incompetent policy makers remain in office to the detriment of the industry and the general public who benefit from our advice and guidance on a daily basis.
Posted by: Bill Wells
Let's hope the FSA stick to their guns
The problem is that at the moment the benefits of the platform fall to the IFA but the cost to the fund management group. Simply put the advisers should pay an annual fee to use the platform, then there would be no need for rebates. Simples.
Posted by: Bob
Deluded
To Bob @ 14:07 You are either at the wind up, or as deluded in your way of thinking as the FSA are in there's.
Posted by: Alistair Blyth
Never ending proof
These latest proposals are part of the never ending proof that the FSA and its transient management are just trying to justify their existance so that they may keep their jobs, at least til the city picks its self up and provides more jobs for the boys. The proposals show a lack of understanding of the consequences to both clients and the industry. I hope that the collective voice will be heard against the FSA despite the backdrop of continued bonuses paid to Canary wharf vultures
Posted by: DaAvid Curley
Funny in'it.....
that car dealerships, in the interests of the consumer and simplicity, are obliged to provide an 'on the road price' and cannot quote a breakdown of costs. Yet the FSA, in the interests of the consumer (who will ultimately pay for any changes, consultations and general self serving dalliance), want the platforms to adopt a pricing strategy more akin to that of the mobile phone market. Arguably the most complicated marketing out there...?? Off on the weekend booze run in a minute, must ask Tesco what they pay for per bottle in the first place, and then the salary of the person who stacks it, buys it in the first place - I won't though, because I am not interested and with an overall price I can easily compare them to other supermarkets. Grrrr
Posted by: BC
I have no sympathy
Essentially what these self-appointed platform spokespeople (or Cartel) are saying is that their business models can't work on a transparent basis. Increased costs to the customer will only be the case if the platforms choose to pass any development costs back to the investor and/or need to maintain the same margins that they currently receive. The move to transparency will actually be good both for the industry and the end consumer as it will create a truly competitive environment. Fund managers compete on price to customer and not price to platform with margin savings passed back to the customer and not the pockets of the platform provider. Transparency will also see new entrants into the market, without the baggage of legacy assets and with more strings to their distribution bow than a slug of money and some golf days, which in turn will drive prices down. We are already seeing it - there are several platforms (and more to come - see SEI's model) that operate sub 50bps with full rebates to client. It is interesting to see the platforms who will prosper (Nucleus, Ascentric and Novia) are the ones which have been the subject of much criticism from the "Magic 3" over lack of capital etc. No shortage of irony there now. These platforms have had it to good for too long (although making £2m on £45m turnover after such a long time is rather special) and must adapt and evolve. Why don't they just be honest and say "we will strugle to have a profitable and competitive platform in 2013 based on the changes proposed". I might just have some sympathy for them then. The same is true for advisers. All the apparent cons of the platform paper are massively outweighed by the pros. I for one cannot wait.
Posted by: Mister Maker
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Deaf ears...
Hopefully the FSA will listen to the combined voices of reason expressed above. There is no benefit to anyone - including consumers - in the over-complication of matters with multiple unit classes and prices. There is no benefit to anyone - including consumers - if the overall costs of using platforms/wraps rise. There is no benefit to anyone - including consumers - of breaking everything down into component parts. Come on FSA - listen to those who actually understand how the industry works and how your proposals will infact detract from the consumer!
Posted by: You must be joking