So the big news this week is the FSA's Consultation Paper reviewing payments to platforms and cash rebates. The main theme discussed in the rags is the ban on platforms being funded by product providers i.e. for platforms to charge no 'explicit' fee but retain the 25bps or so from the fund manager. This was thought to provide a mechanism for commission to continue being paid. I don’t see this myself but see no point in arguing the toss anymore. The regulator has been very clear about its intent to ban cash rebates. It is as likely to change its mind as I am to score the winning goal for Arsenal in next year's FA Cup Final. I thought Ascentric's press release on this point (rebates, not my football prowess) was resigned yet elegant.
The regulator observes that these payments make price comparison between platforms difficult AND lead to product bias for those supplying products with no rebate i.e. passives, ETFs, investment trusts. Both of these observations are true.
But as for the price comparison issue, I'm not convinced that this will be cleared up by the rebate ban. Banning cash rebates will not really make platform comparisons that much easier. We live in an era of confusion pricing and I see no catalyst for change either in the advised or non-advised markets. Think of mobile phone providers or Ryan Air charging people for a pee. Platform pricing models are varied and complex.
In this paper, I think that we hear what is really driving the agenda in a louder voice than ever. The FSA, in my opinion, want great fat headlines about how they have brought down fund manager charges, especially for those who underperform. Hooray, cry the crowds, as the regulator smote the greedy underperforming dragons. "We would be surprised and disappointed if permitting unit rebates did not lead to fund prices falling..." This is largely driven by an agenda to reduce charges and encourage price competition. And I suspect it probably will.
Surprising though that the FSA cite specific numbers and prices in the report...." a clean share class of around 75bps..." Let's not forget the rules of a free market and I think we will see better fund managers reject this spurious price tag of 75bps rather randomly allocated 12 years ago (when Egg and Fidelity popped their platformy heads up) and charge what they think they are worth. Of course, for others, this means they can probably only get away with charging something embarrassingly low. Viva competition and I think this will be a healthy outcome for us all.
Of course it was generally tough news for the direct platforms as the FSA rightly observe how prices charged (or rebates kept) by these guys are typically higher than the advised platforms. 75bps (and the rest) instead of an advised platform's 25bps (and the rest). OK there’s a loyalty discount sometimes but still….Some comments from direct platforms that this is not the case feel partisan. The paper also rightly observes that consumers' buying decisions are -or can be- influenced by direct platforms. I think extending the ban to direct platforms is fair. However I also think those direct platforms which have built service propositions based on more than simply offering a discount on a fund will be OK. I have about 15 accounts with direct platforms and I think some of them would be, and are, worth paying for - were I not just a sad, nosey geek.
Now we get to what I think could be an exciting outcome for the industry. When we actively have to pay for something, we are fussier about what it does. The impact across both advised and non-advised platforms of consumers needing to 'write a cheque' to a platform provider will lead, I think, to a greater focus on making these platforms great solutions not just for advisers, but also for consumers. The adviser platform market development agenda has been dictated by IFAs and these have been a service firstly for the IFA, and secondly for the end-client. I hope we see a re-focus from the platforms away from principally IT infrastructure to digital customer support and engagement – this would be a good outcome for IFAs and their clients alike. Margin pressure on platforms is a challenge but could we see the emergence of 2 IT teams - one focussing on administrative and regulatory requirements and one focussing on making the experience great for customers? Those who don’t will lose customers.
Another outcome of removing bundled pricing structures is to make the terms fund supermarket and wrap obsolete in the future. They’ll just be platforms. I'd really like to see them competing simply on how good they are, not on what their heritage is. Enough of the inter-camp sniping.
The 2 supporting research documents from NMG and Deloitte make for very interesting reading and are thorough, good pieces of work. I'm not sure that they really made the case for banning cash rebates though - but interesting reading for platform gonks like me. Sobering analysis on the fixed costs to run a 'fund supermarket' and also on revenue numbers and profit margins. An average implied cost of 29bps is high and there are a lot of bodies being thrown at this.
A huge amount of data in the Deloitte report was from The Platforum. Whilst we're obviously deeply flattered that the FSA and Deloitte have chosen to use our work so extensively, it would have been nice for Deloitte to ask permission. Or even to buy a copy of some of the research used!
Over and out. Back from Fund Forum in Monaco at the start of the week and after 3 days in Daddy's care, the pigz have gone feral. Bee vaulted her cot last night and Hamish is obsessed with bottoms. Oh the joy.
Have a good weekend everyone
Hargreaves Lansdown has taken the Skandia UK Strategic Best Ideas fund from its Wealth 150 list of favourite funds.
AXA Wealth head of pensions development Mike Morrison has left the life company to join AJ Bell as head of platform marketing.
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Chancellor George Osborne has called the manipulation of LIBOR rates by Barclays traders “a shocking indictment” of the greed of the financial sector.
Parmenion has introduced a tiered charging structure for its administration and custody charge.
AXA Wealth has announced its adviser charging proposition will cover its entire product range.
Investors in controversial film partnership schemes are preparing negligence claims against at least 45 IFAs.
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EDUCATION The Money Advice Service (MAS) may have kickstarted work to coordinate delivery of personal finance education in schools, but recent developments have shown challenges remain.
The Co-operative Bank head of mortgages to head bank’s intermediary lender Platform.
The different platform industry perspectives on the practicalities of implementing the FSA’s proposed cash rebates ban.
The Financial Services Authority is set to consult on extending its ban on product provider payments to non-platform markets such as Sipps and life company products.
PLATFORMS The FSA has at long last published its final (we hope) consultation paper on platform rebates.
PLATFORMS IFAonline picks out ten key points from the Financial Services Authority's (FSA's) latest consultation paper on platform rebates...
All you need to know about the Financial Services Authority platform consultation paper.
Hargreaves Lansdown is confident its business model has the flexibility to cope with the ban on platform rebates proposed today by the Financial Services Authority (FSA).
The unbundling of platform charges will result in greater price competition between fund providers, the Financial Services Authority (FSA) said today.
Ascentric is obviously disappointed by the FSA’s long awaited confirmation that a ban on cash rebates, effective from 31 December 2013, is intended as this will increase costs and potentially be disadvantageous to consumers especially when administering the multiple small transactions which will result from the permitted use of unit rebates.
It appears, however, that this major development for platforms needs to be adopted by the platform industry and Ascentric will work to ensure that we have the necessary systems to accommodate this decision.
The Financial Services Authority has voiced concerns over Sipps which describe themselves as free to consumers when they are funded by product provider rebates.
Hargreaves Lansdown could face a £20 million hit from the Financial Services Authority's proposals to reform the platform space.
The ban on rebates from fund managers to platform providers is to cost platform operators up to £10m a year, the FSA has said.
The FSA has decided to apply its ban on platform rebates to execution-only propositions.
The Financial Services Authority has stuck to its proposed rules and has announced it will ban payments from product providers on platforms from the 31st December 2013, a year after the retail distribution review.
IFA Life seeks ‘holy grail’ of platform requirements as it questions members on appetite for launch.
Almost three quarters of advisers prefer clean pricing where the cost of adviser charges and platform fees are stripped out.
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Discretionaries ‘must establish four-way agreements with clients, advisers and platforms’.
Association urges firms to sign up to help them assure the FSA they are on track to meet RDR requirements.
Cofunds has agreed to settle adviser compensation claim on a no fault basis.
Fund platform Cofunds has reached £40 billion in assets under administration (AUA), following a strong performance in the second quarter.
Standard Life has released more details of its RDR ready product charges for its Sipp, wrap and FundZone
Fund management trade body claims controversial European regulation will have “no effect” on the continent.
Standard Life is unbundling fund charging on its FundZone platform, Active Money Sipp and international bond.
Cofunds has launched its client segmentation and updated fee flexibility functionality as part of the platform’s efforts to help prepare advisers for the Retail Distribution Review (RDR).