Friday, 26 April 2013 08:37
FCA to push ahead with ban on platform rebates
The Financial Conduct Authority has today published its long-awaited Platform Paper - dubbed "RDR2" - paving the way for a ban on platform rebates.
The FCA says its new rules will make the way that investors pay for platforms more transparent. The rules are set to be implemented from April 2014 with a two year transitional period. The changes are set to cost the industry significant sums, according to the FCA's Platform Paper PS 13/1. It says the one-off costs to the industry of complying with the rebate ban could be as high as £67m - higher than originally estimate - with up to £16m of annual costs.
In the future, platforms, in both the advised and non-advised market, will not be allowed to be funded by hidden payments (commonly described as 'rebates') from product providers. Instead, the FCA says that a platform service must be paid for by a platform charge which is disclosed to and agreed by the investor.
Many platforms have recently switched to so-called "clean" funds where rebates no longer occur and where there are no hidden charges.
The FCA has confirmed in its 54-page paper that Sipp operators will be likely be covered by the new rules to ensure a level playing field across different types of platform. The move is likely to cause concern among some Sipp operators already facing the challenge of coping with new capital adequacy requirements.
The FCA says that currently, providers of investment products, such as investment managers, generally pay a rebate to some platforms in order to have their products included on a platform. This rebate comes from the annual management charge (AMC) which is paid by the investor to the fund manager. As a result, some platforms are able to give the impression that they are offering a free service, which means that the investor may not understand the true cost of the service provided by the platform.
This means, says the regulator, that it can be difficult for investors to compare prices and products available on different platforms. There is also a risk that these payments could lead to product bias in the investment market, as products offered by providers who are unwilling or unable to pay a rebate to the platform from their product charges may not have their products available to the investors using that platform.
The FCA is making changes to ensure that investors can make fully informed choices if they wish to use a platform and understand what they are paying for the service the platform provides. These changes include:
• making the cost of the platform service clear to investors by ensuring that the platform service is paid for by a platform charge which is disclosed to and agreed by the investor
• banning cash rebates for non-advised platforms to prevent these payments being used to disguise the costs of the platform charge
• These rules will come into force on 6 April 2014 but platforms will have two years to move existing customers to the new explicit charging model. At the end of the two year transitional period (6 April 2016) platforms will have to charge its customers a platform charge for both new and existing business.
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Christopher Woolard, director of policy, risk and research, said: "Platforms provide a valuable service but investors are often unclear on what that service costs. These rules ensure that platforms put customers at the heart of their business. Customers will know what they are paying and the service that they can expect.
"These changes will allow both investors and advisers to compare the costs of investing through different platforms and make an informed decision on whether using a platform represents good value for money.
"We have listened to industry concerns and have introduced rules that are proportionate, recognise how the industry works in practice and the competitive role platforms play in the market. We are encouraged to see signs that the market has already started to move to products which have transparent charging structures that help consumers in anticipation of this change."
The Policy Statement is being published on the FCA website today.
The FCA says its new rules will make the way that investors pay for platforms more transparent. The rules are set to be implemented from April 2014 with a two year transitional period. The changes are set to cost the industry significant sums, according to the FCA's Platform Paper PS 13/1. It says the one-off costs to the industry of complying with the rebate ban could be as high as £67m - higher than originally estimate - with up to £16m of annual costs.
In the future, platforms, in both the advised and non-advised market, will not be allowed to be funded by hidden payments (commonly described as 'rebates') from product providers. Instead, the FCA says that a platform service must be paid for by a platform charge which is disclosed to and agreed by the investor.
Many platforms have recently switched to so-called "clean" funds where rebates no longer occur and where there are no hidden charges.
The FCA has confirmed in its 54-page paper that Sipp operators will be likely be covered by the new rules to ensure a level playing field across different types of platform. The move is likely to cause concern among some Sipp operators already facing the challenge of coping with new capital adequacy requirements.
The FCA says that currently, providers of investment products, such as investment managers, generally pay a rebate to some platforms in order to have their products included on a platform. This rebate comes from the annual management charge (AMC) which is paid by the investor to the fund manager. As a result, some platforms are able to give the impression that they are offering a free service, which means that the investor may not understand the true cost of the service provided by the platform.
This means, says the regulator, that it can be difficult for investors to compare prices and products available on different platforms. There is also a risk that these payments could lead to product bias in the investment market, as products offered by providers who are unwilling or unable to pay a rebate to the platform from their product charges may not have their products available to the investors using that platform.
The FCA is making changes to ensure that investors can make fully informed choices if they wish to use a platform and understand what they are paying for the service the platform provides. These changes include:
• making the cost of the platform service clear to investors by ensuring that the platform service is paid for by a platform charge which is disclosed to and agreed by the investor
• banning cash rebates for non-advised platforms to prevent these payments being used to disguise the costs of the platform charge
• These rules will come into force on 6 April 2014 but platforms will have two years to move existing customers to the new explicit charging model. At the end of the two year transitional period (6 April 2016) platforms will have to charge its customers a platform charge for both new and existing business.
{desktop}{/desktop}{mobile}{/mobile}
Christopher Woolard, director of policy, risk and research, said: "Platforms provide a valuable service but investors are often unclear on what that service costs. These rules ensure that platforms put customers at the heart of their business. Customers will know what they are paying and the service that they can expect.
"These changes will allow both investors and advisers to compare the costs of investing through different platforms and make an informed decision on whether using a platform represents good value for money.
"We have listened to industry concerns and have introduced rules that are proportionate, recognise how the industry works in practice and the competitive role platforms play in the market. We are encouraged to see signs that the market has already started to move to products which have transparent charging structures that help consumers in anticipation of this change."
The Policy Statement is being published on the FCA website today.
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