The Financial Services Authority (FSA) has released a consultation paper that outlines the proposed ban on payments from investment management firms to fund platform companies.
At present, providers of investment products, such as investment managers, generally pay to have their products included on a platform. This cost is then passed on to the investor in the price of the product.
To make charges clear to investors, the FSA is proposing a ban on all payments from product providers to platforms. This would apply whether an investor using a platform is receiving advice from an investment adviser, or has made his or her own investment decisions.
Sheila Nicoll, director of conduct policy at the FSA, said: “Investors are increasingly using platforms as a convenient ‘one stop shop’ for their investments, but at the moment many investors have no idea what they are paying for this service, while some believe it is free.
“This needs to change. Today we are proposing changes that give investors and their advisers more control and mean that they know exactly what they are paying for a platform’s service.”
Andrew Power, lead RDR partner at Deloitte, said the increased transparency will put platform fees under pressure: “The FSA’s platform paper confirms its originally stated position, and is line with the principles behind RDR of transparency and elimination of bias. It will cause platform providers to re-look at their offering and costs to ensure they can remain viable in a more transparent world where platform fees are likely to come under pressure. Asset managers who have been reliant on rebates to obtain shelf space on platforms will need to ensure their propositions still stand up in a cash rebate free market.”
Nick Blake, head of retail at Vanguard, welcomed the release of the FSA paper, saying it affirmed the FSA’s intention to move forward with creating a more transparent market for investors. “Hopefully the release of the paper will allow market participants to progress their post RDR business planning. Vanguard does not provide rebates to platforms and we welcome the FSA’s intent to create a level playing field for non-rebate paying funds.”
Blake added that: “Until now, consumer access to low cost funds and ETFs (that are non-rebate paying) has been restricted by the commercial models in place. If the proposals outlined in today’s consultation paper are implemented they will widen consumer choice and help drive greater transparency and value for money for investors.”
Last month, Vanguard made its ETF debut in the UK, launching five low-cost funds on the London Stock Exchange.
Ed Dymott, Head of Business Development at Fidelity Worldwide, which recently rolled out an initial range of 50 ETFs on its FundsNetwork platform, said: “There are few surprises in today’s platform consultation paper, with most of the policy being already well debated. We welcome increased transparency and have already taken a lead here in the market.”