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FSA gives ground after platform cash rebate protest

by Jun Merrett on Feb 19, 2013 at 07:57

FSA gives ground after platform cash rebate protest

The Financial Services Authority (FSA) is set to make concessions over its controversial platform cash rebate ban by allowing payments to be made for small investment amounts.

New Model Adviser® understands the regulator has been in talks with members of the platform sector over allowing cash rebates for de minimis amounts, and has suggested allowing the payments where the cash rebate amounts to less than £1 per month. It would allow investors to place around £130 a month in an individual fund and receive a cash rebate rather than a unit rebate, although the move will not affect funds with clean share classes.

A source familiar with the situation said: ‘The FSA has come up with a figure for a de minimis for cash rebates... If the amount of rebate is £1 or less per holding per month, that is an awful lot of very small transactions, which is an administrative burden for platforms because of the sheer volume. You will be doing it for millions of small holdings.’

The FSA first proposed its platform cash rebate ban in a November 2010 consultation paper, and the plans survived throughout its later platform pronouncements.

It is understood the exemption for smaller payments will be included in its policy paper, due to be published later this year. It would follow lobbying from the Tax Incentivised Savings Association, although it had proposed the exemption should allow rebates of up to £10.

David Ferguson (pictured), chief executive of wrap platform Nucleus, said the change would affect around a third of its users.

‘It would capture quite a lot of clients on Nucleus and mean a third of clients would continue to get [cash] rebates,’ he said. ‘It will also affect fund supermarkets more than wraps because they typically have more lower value clients.’

However, he warned that it could lead to complications by forcing platforms to operate two rebate systems. 

Verona Smith, director of marketing at Cofunds, said the platform provider would support the move. ‘If this is the case, it is absolutely supported by Cofunds and it is a big deal that will affect thousands of clients. £10 would have been better but introducing a de minimis is a better outcome for platforms and clients as we won’t have to buy back parts of units for a tiny amount.’

The FSA is also understood to be considering concessions to its ban on fund manager payments to platforms, allowing them in one-off cases where platforms are adhering to regulatory requirements on behalf of fund groups, such as where funds merge or close, or pricing errors are rectified.

28 comments so far. Why not have your say?

The Facilitator

Feb 19, 2013 at 08:35

This would be a complete nightmare to try and administer.

When are the FSA going to learn that when you're in a hole, for Christ's sake stop digging!

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Aristotle

Feb 19, 2013 at 08:48

So, now platforms have to administer legacy rebates, de minimis rebates and we all know that the new "clean" shares classes aren't necessarily cheaper or even cost neutral. Not to mention the tax implications. Well done FSA - another idea with a domino effect of "unintended" consequences.

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David Craik

Feb 19, 2013 at 09:15

The FSA is getting beyond a joke.

Incompetent idiots that 1) have not a clue and 2) will not be educated.

The worst of it is the lack of integrity flowing from the top down.

When will our politicians take any notice?

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Chris Macdonald

Feb 19, 2013 at 09:39

Personally thought this was quite a positive article after months of negative feedback!

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Knowledgable insider

Feb 19, 2013 at 09:53

Our politicians wont notice because there are no votes in it for them - all of the nonsense that we have to put up with is due to there not being a strong industry voice challenging this lunacy. The large institutions are too terrified of the FSA and potential consequences for trouble makers and practisioners make do with complaining on sites like this. I, like many others, have had to explain to clients what the purpose of this ne w charging sysytem is given that the end result is the same in terms of costs after competion of many sheets of paper!! Truth be told, I and my clients believe the purpose is to keep these parasites at the FSA in ongoing work.

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Ian Lees

Feb 19, 2013 at 10:07

What a pity the hooded night - and his colleagues - did not first check his reasearch prior to establishing his might . Like the Food Standards Agency - another FSA has refused to check or gain knowledge of theri subbject - or carry out sufficient checks - and deteriorating standards at each FSA - causing further interference and unnecessary and unwarranted costs for providers - form these associated quangos and reckless regulators. One wonders how Barclays will now benefit given this turnaround ?

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The Facilitator

Feb 19, 2013 at 10:13

@ Chris Macdonald

Chris, I agree it sounds great right up until the point you think it through in terms of what would need to be done behind the scenes to support it.

Add this into the mix together with the other unintended consequences of RDR, plus the unnecessary costs being heaped on the industry for the FSA name change, plus the numerous other examples of needless costs, the industry is being brought to its knees.

This has to stop.

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David Craik

Feb 19, 2013 at 10:26

@Chris MacDonald

No, what would be positive would read,.. We have reviewed the submissions from Industry and realise the error of our thinking. Of course cash rebates are acceptable as long as the clients are aware of them and advisers ensure that cash does not languish or build up significantly.

To suggest it is ok for £1 per month but not for £1.01 confirms my suspicions that these imbeciles need a good kicking!

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Adam Grant

Feb 19, 2013 at 10:41

Verona Smith sounds like she's after a job at the FSA,...!

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Stanley Kirk

Feb 19, 2013 at 10:53

The idea that reducing cost with a rebate is bad, never mind so bad that it should be banned, has always seemed very odd and the 'case' for it extremely flimsy. Slowly all the practical consequences have become public, most nasty. Why on earth can't the FSA just admit it was wrong and finally drop this whole foolish idea which has blighted platform development (and further cost reduction) for so long.

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Mike Morley

Feb 19, 2013 at 11:38

Two FSA s one in search of horses the other run by donkeys!

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Chris F.

Feb 19, 2013 at 12:23

Either it's ok, or it's not. This is the worst of both worlds. An aministrative nightmare and as clear as mud.

It has the hallmarks of everything the FSA has ever done - an ill thought through shambles.

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philip spierling

Feb 19, 2013 at 13:16

Either ban cash rebates, or dont.

This is going to get more complicated and a nightmare of admin for all involved.

For gods sake make a concrete decision and stick to it, stop fiddling around the edges.

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A Childs View

Feb 19, 2013 at 14:08

I think the potted history of this goes something like - 1) FSA arrives at misguided view that cash rebates make understanding pricing impossible 2) Because of 1, they propose that cash rebates should be banned (with unit rebates still allowed) and everything go clean 3) industry consultation points out to them that rebates in unit form would be a nightmare and that a complete move to clean might entail higher prices through loss of commercial negotiation 4) FSA think 'oh sxxt' and kick the rebates can doen the road for a bit 5) Not wishing to u-turn and look stupid (too late for that I hear you cry!) they come up with de minimus which makes them feel they were right all along but is actually a nightmare administratively and for consumers....no matter though, they appear to save face which is the important thing. Next steps will be to issue the Policy Statement compelling the industry to do this. Job done.

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Chris F.

Feb 19, 2013 at 14:19

We can now see from the new, "clean" units that the charges have gone up. This can be seen from comparison with institutional units but also by directly comparing the old "full fat" funds when net of unit based rebates.

End result: the consumer pays more and the fund management wonks get more. Only a ragingly paranoid cynic would suggest that there is a link between these large institutions benefiting from the FSA's stance on these things and the jobs the ex-FSA/FCA employees walk into after their time on the gravy train...

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The Facilitator

Feb 19, 2013 at 14:22

@ A Childs View

Top marks, extra spotted dick and custard for you!

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Chapman

Feb 19, 2013 at 14:37

Surly this is too complicated as it is not just about the amount the cleint has in a portfolio but also the amount of different funds

If a platform is find it difficult to move to unit rebates it is surly going to find it more difficult to move to a combination of the 2.

Skandia must be sitting back and laughing.

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James Hurdman

Feb 19, 2013 at 14:48

This, and the fact that KIIDs often don't reflect the charges of a fund purchased via a platform, make this all a bit of a messy joke.

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Chapman

Feb 19, 2013 at 14:54

Also thinking on a client culd easily have a portfolio with some units rebated on a cash bases and some on a unit rebate, confusing mr client?

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Chapman

Feb 19, 2013 at 14:56

Also as a fund grows in size it may have to move to unit rebates, then what do you do if it falls in value?

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David West

Feb 19, 2013 at 15:24

Gordon Brown is probably a consultant to the FSA since his tinkering skills, so very well demonstrated within HMRC during his reign of incompetence seemingly lives on at the FSA !!

For me the biggest concern is a ban on trail commission to platforms. This money will have to be made up somehow by the platforms and will presumably mean extra annual admin charges to their clients. You can bet that the annual management fees on the underlying funds will not be reduced proportionally.

If it aint broke don't fix it is being completely ignored by the FSA. Meanwhile government wants to encourage saving - what a laugh.

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sol trader

Feb 19, 2013 at 17:27

I'm getting slightly lost with all this.

Does anyone know if platforms and online non advised websites are allowed to pull in clients on the basis funds are "free" but still receive commission & kick backs. If so - why?

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Ian Lees

Feb 19, 2013 at 17:44

@ Sol Trader . . . you are getting lost ? For goodness sake . . do not follow these lost leaders ( or lack of leader ) at the Fickled Services, lack of authority ( or the FCA) - where fundamental - reckless and lost leaders - are used . . . to destroy Sole Trders and small businesses . . by a corrupt governemtn and their Government quango . . . . under instruction from their banks ( no pun intended ) of unemplyed bankers . . . conduct affairs of the UK Government . . . so disasterously . . . and no one takes responsibility. It is what we used to refer to the failed management of scottish widders - it is the "Incompetent running the Incontinent ".

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David West

Feb 19, 2013 at 17:49

@ sol trader

As I understand it, some platforms rebate the INITIAL fee charged by the fund managers, either wholly or as a percentage of the initial fee.

However, there is a trail commission paid by fund managers to platforms each year. Some or all of this commission is paid back to the client of the platform.

For example, Hargreaves Lansdowne pay a percentage of the trail commission back to their clients as a "loyalty bonus". The rest is kept by them for running the platform.

If this trail commission is stopped by the FSA they will have to make up the difference in some other way, namely, I suspect by charging each client a yearly admin fee for their investments held on the platform.

I would hazard a strong guess that this will not be made up for by a proportional reduction in the yearly management fees charged by the underlying investment houses.

This has, from the outset, been my argument that the FSA is tinkering with something that presently works well at the cost eventually to all of us who hold funds via a platform provider.

I can't speak for all platform providers but HL do NOT make a secret of the commission they receive.

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Ian Lees

Feb 19, 2013 at 18:10

@ David West.. Hargreaves Lansdown have shown to be great value for investors. Being picky about one little area . . .does not represent the full value clients can have. HL confirm their charges - consukers are fully aware of them - and quite frankly of consumers do not like them . . . then they are free to go elsewhere. Charges are about being reasonable for the service you provide. HL provide great service on various levels - charges are explained - why would anyone ( other than a jealous person - moan about their charges - becuase they cannot compete with HL, in quality of service, quality of information depth of information and various services available ) . This is why HL are so professional, so profitable - and their service cannot be replicated - at any cost .

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MR C.

Feb 19, 2013 at 20:19

Words like "brewery" and "p!$$ up" spring to mind.

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EVHE

Feb 20, 2013 at 01:16

Does that mean that the champion of non cash rebates Skandia will now add a cash account to their proposition as first promised in Jan 2010 article in NMA ?

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David West

Feb 20, 2013 at 11:49

@ Ian Lees

I was not being picky about any area regarding HL. I have been a client of theirs for many years and I agree with you that they give very good service and their website is useful and informative. Don't really understand your point.

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