FSA backs down on platform rebate ban after lobbying

A shame.

A shame but sometimes a pragmatic approah is what is needed or a simple change in timescales for changes. A rushed or botched action can be worse then inertia.

It's a pity the FSA didn't come to the same conclusion with much of the rest of the RDR, i.e. adjust timescales rather than plough on ahead when laudable aims look like they may have terrible consequences....

This is Fidelity's take on life - I have spoken to senior people at FSA and can categorically state that they are very committed to the transparency on rebates. The delay in the paper, I understand, is due to the problems in drafting appropriate text to cover the changes so that it dovetails with the requirements set out in RDR paper on adviser charging.

Rather than comment on what they think it may look like I would suggest that Fidelity consider the end-user requirements (who doesn't want transparency if offered it?) and less about the bottom line of their own propositions.

So Clairty in Adviser Charging but not in fund charges - I only hope the FSA launch a detailed review of fund charges.

The murky world of retail finance continues...

The murky world of retail finance continues...

Sorry for the typo CLARITY - must have been the rush of blood

So big boy bully tactics do win every time! This was one of the initiatives that I really thought would help the consumer too unlike other attempts.

I like this story. It was a great story when it was first published in Financial Adviser on 12th August. Still good now, if slightly old.

At the end of the day, if the client benefits from these bundled propositions they can't be all that bad?

I can't think of many instances where an unbundled proposition is cheaper than a bundled one for clients with assets under the £1m mark.

So the FSA appear to be happy for the general public to continue to be hood-winked by the sales and marketing departments of large investment houses who use these platforms as a means of locking out new and niche and innovative (read small) investment houses. Until the FSA implements a system by which the consumer can see how much they actually pay for all the "free" services they gain access to through product providers and advisers the FSA will continue NOT to protect the public as it should.

These platforms exist as a sales and marketing channel for large investment houses and for advisers who appear not to wish to clearly demonstrate to their clients the true costs of services provided and they act, effectively, as a cartel against new entrants.

Well done, again, the FSA for spotting the problem and completely ignoring it.

Its all too complicated. Clients just need to know what they will be charged in total and that's all that should be required. The more unecessary info, the more complicated it all is for clients to understand.

Sorry to inject a note of dissent. I think this - if true - is a good common sense conclusion and seems to show (if true) that the FSA is open to reason. Who the hell cares (as I have said so often) provided the client knows 2 things:

1. What is invested for his payment.

2. What the ongoing charges are

The rest is a commercial reality which in this case actually advantages the client. Or put another way if the Transparency Ayatollahs have their way it will cost the client more.

I don't only say this as an IFA, but as a client of platforms with (by anyone's measure) considerable sums invested.

If clients know the price and know the running cost why would they or their advisers be anoraks for the sake of it?

This doesn't mean to say that charges should be ignored, but they would be implicit in points 1 & 2.

I can't understand why a client would want to pay more for the same product just to see the breakdown in, increased, charges. If I am looking for a new TV and the same model is £50 less in Tesco I will buy it there, as long as it works I really don't give a stuff who makes what and where along the line. In the interests of consumer clarity car dealers can only quote an 'on the road' price as to breakdown the various components is deemed by the OFT (or whoever) to be confusing for the client. I would tend to agree.

I agree with Harry. If all platforms are unbundled it will clearly be to the detriment of client's.

If I have to, I can live with fund managers giving rebates to platforms, providing all such rebates are fully and transparently credited to the clients' investments and the platform makes a separate, explicit charge for its fees (As would the adviser).

Secret backhanders between fund managers and platforms must stop, as should similar incentives agreed between fund managers and networks. . .

Unbundling of platform charges should still be made mandatory, whether or not fund manager rebates persist.

The industry has little trust amongst consumers - one of the main reasons for this is (as MPs discovered to their cost) a lack of transparency.

Without transparency their is no price competition...this allows platforms operate as a cartel and the cost of overall advice and product rises.

Smaller fund managers are asked to pay £10,000s for access to a platform - that is anti-competitve.

It is curious that TERs for funds in the UK have risen at almost exactly at the same rate that the platforms are charging fund managers.....so the customer - whether they use a supermarket or not is paying for it - that sucks.

Advice is the most important part of the whole process - an online valuation system (like an online bank account) should be pretty close to zero cost - that is not going to happen while the costs remain opaque.

This is not a good day for consumers....as usual.

I fail to see what people are banging on about. A 1.5% charge is a 1.5% charge and the client knows the cost of the product. It is a bit like a garage, you pay for a car you don't ask them what their mark up is.

The platform providers negotiate whatever discounts they can get and pass them on to the client if they are relevant. The likes of Fidelity will not get business unless they are competitive and their are plenty of platform providers out there who offer unbundled charging already so use them

Unbundled charging is all very well but explaining it to the client is not easy. Bit like explaining all the bits of a TER etc etc. Most want to know the up front costs and what any investment is going to do to help them meet their goals.

As Robert Reid has said they would be better attacking the fund management groups for their charges. Has anyone met a poor fund manager!

How can anyone believe that any continuation of what has in effect been a cartel between fund managers to be in the customer interests.

And yes the transapency bit helps.

Personally i would have allowed the rebates for 1 more year and told the platforms to deduct charges and fund managers to operate net.

The managers complain that there is too much cost etc. Well cut down some of the nonsense funds then. Might even stop some off the new model advisors on the road to Damascus screwing things up

If the FSA turn their back on this proposal to make charges clearer, they leave the platforms in control of the funds available to IFAs who have increasingly built their businesses around the use of a platform. The Big Boys Club established between platforms and the fund groups most willing and able to pay to play will continue to restrict the route to market for innovative new funds - clearly desirable to the established players but a disservice to IFAs and their clients.

The issue is that the 1.5% charge would be lower if the supermarkets were transparent - fund managers have put their prices up becaue they are paying the platforms. And it doesn't matter whether you use a platform or not to buy the fund you are paying the higher fee. That is a bad outcome.

Platform providers negiotiate discounts and keep them!

I absolutely agree that fund managers should be put through the same scrutiny on costs as IFAs. And so for that matter should Life and Pension providers...how can you compare an AMC with a TER with an RIY....? There needs to be a standard!

And the same goes for Supermarkets/Platforms.

A small fund manager is asked to pay £50,000pa minimum to join some Supermarkets - that is in effect controlling access to the market and thus makes the Supermarkets product providers or distributors rather than benign technology platforms.

Platforms should be 10bps not the 40bps plus that many are - proper transparency is one way to force this down for the benefit of IFAs and cinsumers.

The Platforms may have their way , and possibly this is positive for the client but the poor old IFA will pay the price when the FSA post 2012 reviews platform v wrap advice and we have another miss selling debacle because IFAs who use Platforms have to justify the limited advice v whole of market selection, the warning signs are already in the published guidance, BEWARE !!.

As Harry & Bob say, the client only wants to know the total cost of running their investment. Fine separate the ongoing advice charge, but the rest is irrelevant to the client.

There seems to be a lot of paranoia about cartels. Maybe some of these boutique managers should set up their own platform if they really are being excluded.

Now you know who is actually in charge of the industry.

There will be more to come.

When RDR comes into force then this will have to be sorted. All those who seem to think this is OK will find that when fees only are to be charged then you will need to show the client how you are being paid and this can only be done properly when the platform you use can break down the payments.

They can't just 'say' they will pay the money back to the client account and not show that payment, so it will be simplier if the fund managers show their true charges, without money back to the platform/fundsupermarket, and then anything you have agreed with the client is shown separately and the provider will also have to show their charge too.

It will then be interesting how many of you, who think this is OK now, change your mind about the actually cost of some of the fundsupermarkets and if they can stay in business.

If the FSA backtrack on this issue, it will send out the wrong signal to the industry. Transparency is a good thing. It will help client and advisers see true costs, stop the backhanders and make it more of a level playing field.

Platforms bleat on about costs. It is not always about costs. What about the overall proposition.

Do what I say not what I do.

As Philip M. says there is no doubt that the Banks and the large companies with funds to fight and incentives to offer are in charge.

The bottom line is that this market doesn't function properly because of behind the scenes payments - fund managers are prevented from participating, IFAs don't know to what extent their advice is constrained and consumers are forced to pay more than need be the case. I'll be astonished if the status quo continues without at least greater disclosure of rebates.Why should IFAs be forced to be open about how they are remunerated and other market participants not be told to do likewise?

So much hot air over a few basis points, transparency is a nice principle in many ways but not always practical and I think we are getting more worked up about it than any of our clients would. We also use unbundled wraps as well as bundled platforms, the former pay more for wider range of investments etc.... and often ask, "What does all that add up to then?". Transparency would reduce competition between platforms as it would remove commercial confidentiality, admittedly the smaller players would find it harder to compete.

I think more investors who have investment bonds and think that they are in, for instance, Inv Perp High Inc, would rather have some explanation behind performance figures for the 'same' fund between different life offices over the last year ranging between 12.7% and 16.1%, than a tedious breakdown of a few bps here and there - I would!. Unbundling is a nice debate but there is far worse going on under the sun. Bill Crowley

Correct me if I am wrong, but the unbundled ve bundled debats is NOT the same as transparancy?

Like Bill above, we use some platforms which are unbundled and some which are bundled. We use some which allow re-registration away and some which don't, after assessing which platform is best for the client NOW and which may be better for them in the future and then reaching an (unfortunately unscientific) decision using our crystal ball. The same is true to say for moving (or not) clients away from a platform which does not allow re-re (only transfers). We discuss the advnatages and disadvantages with a client and advise what we think likely to be moth appropriate, ultimately the clients decide and in these cases, sometimes follow our advice and sometimes they don't, but this is more a perception issue for them of how they like things presented and their preference for lack of change often OR their preference for simplification at a cost.

Let's get the FSA to insist on the transparancy and re-registration first over a reasonable timescale and then look at unbundling again after seeing the affects of these improvements FIRST rather than changing too much too soon.

The bundled/unbundled debate is about transparency, choice and the impact that a lack of transparency has on choice. Bundled propositions constrain innovation and encourage the status quo to prevail. They prevent consumers having access to many (often lower cost) passive and boutique fund management propositions.

Whilst various providers have big axes to grind, on both sides, the 'balanced view, as put across by the TISA submission (who have members at both extremes pf the argument) is that there is a market for bundled pricing, probably in the direct and 'restricted' distribution sectors rather than 'independent'.

Much more important than this is the battle over fund rebates to clients where I sincerely hope that the FSA does do a U turn as this will otherwise cause chaos for all the unbundled pricing wraps and set back the drive to lower fund charges by years.

I have to disagree with tcfDAN on wrap charges - 10bps is not possible in the UK and won't be for some years - when full electronic trading in funds finally arrives to replace current arcane dealing processes, there will be a chance. Meantime, fund costs are the most obvious area of over charging - I suspect that DAN will agree with that.

I agree with David Ferguson - all this guff from the self-appointed UK Platform about costs to the consumer increasing due to this is based solely on their models retaining the current level of profits (or not as in some of the cases). It ignores basic (and I mean basic) economic principal of competitive markets which must drive cost down if allowed to operate in a normal way.

As far as customers being over-loaded with documentation and information that will confuse them - I am sure the public would appreciate such a patronising view. If its not unreasonable for the client to know how much an adviser gets paid and its not unreasonable for them to know how much a fund manager is getting for managing their money - surely its not unreasonable for a client to know how much a product provider gets paid for doing............ah now I can understand their reluctance.

David F - Why not just make every platform have a clear statement about bundled or unbundled as the first step so the consumer would nknow whether they are comparing apples & apples or oranges?

I really have no axe to grind either way as whilst I don't use your unbundled system I do use a different one as well as some bundled propositions in attempt to match to the clients needs. What I charge for my work is the same either way and whilst I would prefer more transparancy, I have seen lots of arguments for bundled and unbundled (particulalry on linked in forums, showing how much of a mess a bugled rush could be) to co-exist PROVIDING transparancy and choice is improved for the consumer.

Phil C - I would have no issue with that provided the statement made it clear the restrictions (and potential restrictions) that clients may be subject to.

I wonder, for example, how many fund supermarket investors realise that they could buy a 50/30/15/5 equity/bond/property/cash portfolio for as little as 56bp (excluding advice fee) with full CGT and consolidated tax reporting across unwrapped, Isa and Sipp (inc drawdown) wrappers? For those in the 'unbundled is more expensive camp', this is a factual scenario which I most recently verified a few weeka ago.

MM - good to see someone drawing attention to the 'self-appointed' nature of the UK Platform Group. It also appears to be rather closed in nature.

So, if the platforms are unwilling to provide an unbundled structure, will they now give advisers & clients an exact breakdown of costs? E.g:

0.5% = trail commission to adviser

0.3% (?) = retained by fund manager

0.7% (?) = payment retained by platform from fund manager

I put the (?) in because I don't know what the actual splits are - they will obviously differ between platforms & fund managers. The charge can still be bundled, but at least with this sort of clarity the truth will be known.......

But, then again, it will probably be fudged - there will be some excuse like it is unfair or it is commercially sensitive, or it cannot be done because the systems won't allow it (just like re-registration).

There is nothing to stop clarity in my view apart from maybe some fears that we will learn how much the platforms are earning for doing what they do.

Nucleus & the like are pretty straight forward - I have introduced unbundled charging via wraps over the last 18 months or so - clienst are fine with it, they know how much they are paying (& to who) & what they are getting for it.

Another point that hasn't been mentioned yet - all of these platforms are bringing in (or already have) "guided architecture" & "model portfolios" - without the transparency, how do advisers know that the funds suggested are the most appropriate, not just those where there is a bigger kickback from the fun manager???

It's not all about lowest charges, it's the overall service.

Personally i think clarity will help massively for both clients and advisers alike, the issues lay in the closed minded people who clearly don't enjoy (for what reason, you guess?) explaining their charge for advice - By and large I agree with the comments above suggesting that bundled charges will allow the platforms/wraps to manipulate the market for their own pockets.

My fear is of a hidden agenda perhaps, many of you will be using Skandia and Cofunds, both of which will in theory have to adjust their model to unbundled which will cost money and therefore raise the charges of these nice cheap contracts we have all been selling.

Unfortunately the vested interests of the bundlers are anything but hidden. Perhaps if they'd adopted the same technique they apply to their charging structures we would be none the wiser as to whether they agreed or not on the subject.

Will the genie escape out of the bottle soon.

The onus should be on platforms to have an explict charge and clearly state what they give a client for that charge ( e.g ) custodial work, financial protection, tax reclaimation ( gross vehicles) , tax contribution advancement (pensions) etc. this allows you to put a premium on added value.

Next step should be getting clients true Institutional pricing with best buying power on behalf of client. Thus purchasing power of a platform is really about commercial reality.

Surely this it what they pretend to do???

Reality is while you have the big smoke and mirrors games we will always end up with things like offshore bonds buying net funds rather than gross which is a TCF issue. You have a conflict of interest if a provider / platform is able to claim ignorance and buy more of a UK retail fund to trouser the rebates. Reality is that they know this does not get the best client outcome.

Providers/platforms have a moral obligation to get the most tax efficient share class for an investor, is this not what they are getting paid for?

On the subject of transparenct FSA,FSCS leveys should be seperate from an advisers remuneration as well!