Skandia welcomes FSA stance on cash rebates
Skandia, part of Old Mutual Wealth Management, welcomes the confirmation from the FSA that it remains minded to ban cash rebates but says the delay in the final rules has created further uncertainty for platform operators who are in the process of building RDR ready platform services. Skandia’s full response to the FSA Policy Statement 11/9 about platforms is detailed below.
Cash rebate ban
Skandia welcomes the fact that platform rebates can continue and whilst it would have been ready to implement either cash or unit rebates it has always firmly believed that unit rebates are the best option for customers. Investors use platforms to invest in funds, not cash, so it follows that a discount that is negotiated by their platform operator should be credited back into the fund rather than the cash account.
From a customer perspective cash rebates could create confusion around exactly how much they are paying for both the platform and advice. This is because the platform charge and advice costs can be automatically deducted from their cash account which is funded by rebates rather than the investor. Even when fully disclosed, there remains a real possibility that investors could think their platform and advice costs are paid for by the rebates they receive. This is much closer to the current commission regime than it is to the new adviser charging regime.
Provider payments to platforms
The FSA’s desire to ban provider payments to platforms causes no issues for Skandia and it can understand the thought process and rationale behind it. As part of the Retail Distribution Review and in line with adviser charging, the platform market has an opportunity to deliver transparent and understandable charging structures to investors. Skandia believes this will best be delivered by fully unbundled charging structures that separate the costs for fund management, platform and financial advice.
Skandia is already well down the road in developing a new charging structure that will pass rebates in full back to customers, facilitate transparent adviser charging and be ready well ahead of the proposed RDR implementation date. This preparatory work gives Skandia the confidence that it can accommodate unit rebates if necessary, whereas other platforms only have one operating model, either based on a bundled charging structure or cash rebates, and will have to invest heavily to be able to accommodate unit rebates, thus potentially limiting further innovation.
Execution only platforms
Skandia welcomes clarification that the FSA is considering whether the new rules on cash rebates and payments from providers to platforms, along with the new disclosure rules for platform rebates, should apply to execution only platforms. However, it believes the FSA should go further and ensure the rules apply to all services that offer investors similar, platform based services. These would include SIPP providers and life offices as well as platform operators and execution only services.
Timetable for implementation
Whilst the deadline for implementing the final platform rules remains unclear, the policy statement suggests that the platform consultation and RDR implementation date have been de-coupled. This is less than ideal for platform operators who are already building RDR ready platform services and will have to continue these developments with uncertainty around what the final platform rules will be.
Peter Mann, chief executive at Skandia UK, comments:
“It is good news for investors that the FSA is still clearly minded to ban cash rebates. I agree with the FSA that the decisions on platform rebates and payments from providers to platforms will have a significant impact on the business models of platform operators and so it is right to give them careful consideration. However, there are many people with a vested interest campaigning for the ban on cash rebates to be scrapped and I hope the FSA remains firm and proceeds with its desired outcome in the final rules. This will be in the best interests of customers and it is important that this prevails over the short term interests of platform operators if the platform market is going to serve the needs of investors over the long term.”
