26 April 2013

UK FCA sets out new rules for the platforms industry

The FCA has published rules to make the way that investors pay for platforms more transparent. In future, platforms, in both the advised and non-advised market, will not be allowed to be funded by payments (commonly described as 'rebates') from product providers. (Includes IMA & Deloitte responses.)

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.

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.

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."

Full article

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IMA responds to FCA platform paper: 

The Investment Management Association (IMA) is pleased to see the much-anticipated final rules on payments from product providers to platforms published today by the Financial Conduct Authority (FCA).  The rules apply to all providers of “retail investment products”, including funds.  

Julie Patterson, IMA Director of Authorised Funds and Tax, said: “These rules provide some much-needed certainty that enables fund managers to take informed decisions about the range of share classes they wish to offer and the appropriate setting of the annual management charge. We share the view that the new rules on payments to platforms should relate to both new and legacy business.  Allowing indefinite payments on legacy business could cause distortions in the platform market.  It is also a pragmatic response to enable a reasonable period for system changes.  We continue to want a sunset clause for payments to advisers for the same reasons.

“The rules allow payments for certain services to continue to be charged by and paid to platforms by product providers.  There are areas where the IMA may be able to facilitate efficient and low cost information sharing, principally in connection with regulatory requirements pertaining to data flow from platforms to managers.  The IMA is engaged in initial discussions with its members and platforms about the possibility of the IMA acting as a central hub.”  

IMA-press release © IMA

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Andrew Power, lead RDR partner at Deloitte, said:

“The FCA’s decision to ban cash rebates is in line with the objective of the Retail Distribution Review, and the change will ensure that cash rebates cannot be used to offset charges for advice.

“Platforms are likely to accelerate the move to clean share classes and they will want to negotiate deals with fund managers for individual discounted share classes. This will be challenging for fund managers who will not want the time-consuming and expensive process of creating multiple share classes for the same fund. The creation of a sunset clause for legacy rebates will accelerate the timescales and the demand.”

Deloitte press release © 2013 Deloitte LLP

© FCA - Financial Conduct Authority