You cannot afford to fail the Panorama test

Dear FSA, I do hope you won’t mind me expressing a little surprise at some of the contents of your platform paper, but be honest: you have done something of a U-turn.

The platform paper is only a part of the total RDR; it is important that ultimately the whole thing hangs together consistently and meets objectives. A good test is the Panorama test. In “Who’s taken my pension?” (which was about asset management, rather than pensions), rebates were referred to as kick-backs.

The industry spokeswoman said that agreements between fund managers and product providers are confidential. The Panorama presenter replied, “What have you got to hide?” Checkmate!

You cannot give Panorama the opportunity to crucify the industry with so much ease again after your eventual launch of the RDR. More clarity of products and services is a key objective. It is important to note that the word is clarity, not transparency. Total transparency across the board is as likely to confuse as much as explain.

The problem, I think, starts when in the executive summary, you describe the platform as primarily a fund administration tool:

We have concluded that most of platforms’ activities are about providing administration services to fund managers. (FSA CP 10/29 1.6 slightly paraphrased for brevity).

I really can’t think that anyone else would agree with this – well objectively, anyway. Platforms are about aggregation, single page reporting, tax wrappers, online trading of all forms of quoted asset classes – not just funds.

This is important, as I believe this flawed view influences other decisions.
The value chain is being broken into little pieces, so the division between manufacturer and distributor is now often very opaque. The distributor can be the custodian, can carry out administration, can act as ACD, can even run the money – and all of this is happening. You don’t seem to be aware of this.

I have no problem with bundled pricing. If all pricing had to be utterly transparent, we would be in a very confused place. But, there must be clarity. We must know how much of our money is being invested and how much is going somewhere else. Most people care about the former rather than detail about the later. Fund managers, much like actuaries, have the ability to explain things in a way that few elsewhere understand. You have a lot to do to achieve clarity now.

You are concerned with product bias, which is why I was surprised that packaging fees into product is to be allowed. There has also been the suggestion that factoring will be allowed for networks. If this is the case, it could result in ‘products’ indistinguishable from investment bonds on indemnity.

That platforms will be able to be remunerated by rebates will not be well received by many passives, ETFs, investment trusts. They will see this as another example of you potentially allowing product bias. Wrap platforms will see the outsourcing of administration to some platforms as a total distraction from the remuneration issue.

That rebates to customers via cash accounts are to be abolished will be seen as an unfair blow. Whether it is or is not, whether it is workable or not, to say this is because rebates to customers have been used to offset adviser fees is inexplicable – I have neither heard it expressed, or know anyone who has heard it expressed.

In short, I think you need to think through some of these decisions very carefully and ensure that all who are delivering the RDR sing from the same sheet and meet the objectives of clarity and freedom from product bias. You cannot afford to fail the Panorama test.

Clive Waller, managing director of CWC Research