Consumer Panel says FSA should ban all platform rebates

dunstonh

The FSA paper may actually still be published in July. The Sept delay is just rumour.

Another bit of news has come out today.
HMRC look to be backing away from charging VAT on platform charges (or most platform charges).

http://www.moneymarketing.co.uk/1033283.article?cmpid=MME01&cmptype=newsletter&email=true

darkpool

dunstonh wrote: »

Its costing billions of pounds to implement and there are very few that are going to gain from it.

Obviously a couple of million investors will benefit though?

dunstonh

darkpool wrote: »

Obviously a couple of million investors will benefit though?

How? By paying VAT or increased charges?

Rollinghome

There are many problems with the present system, some of which should be resolved by the RDR

The current situation is that IFAs can pocket trail commission every year for investments they may have sold years ago (all paid for by client from fund charges) but without any obligation to do anything for the client in return. The amount earned from the client can be hundreds or thousands of pounds every year. I seem to remember IFAs getting very upset at the audacity of Scottish Widows when they suggested they'd only pay annual trail commission when IFAs actually gave an ongoing service.

The other more obvious problem is that people go to IFAs not just to be sold products but to get advice. In most cases the "advice" has been paid for by commission from the product providers to sell their products in much the same way as other direct salesmen are paid. The advice is no more free than a quotation for double glazing is free. That's not to say that some advice may be better than some other, whether for investments or for windows.

Another problem has been the cost: inflated because IFAs have been valued far morely highly as salesmen by the investment industry to sell their products than valued by clients for providing advice. Companies will always be willing to remunerate salesmen highly when they can recover the cost from sales. Typically less than half of a unit trust fund's AMC will actually go to managing the fund with the bulk of the charges going on marketing and sales commission. Such a high ratio of sales costs to total costs can't be to the customer's benefit.

IFAs have threatened and fought against the RDR for years and pinned their hopes on the new government taking a different view. They haven't. In fact, Mark Hoban is even more in favour of RDR than the previous government saying "it will attract new talent to the industry and create a level playing field for advice". http://www.moneymarketing.co.uk/politics/mark-hoban-says-rdr-will-attract-new-adviser-talent/1020266.article

Many of the more forward-looking IFAs are also in favour, confident that they will still get clients when their fees are explicit rather than hidden in commission. Ian, the financial planner who posts to this forum, has said he thinks it will help rid the industry of the used car salesmen types. Already many IFAs have been persuaded by the incoming RDR to take a greater interest in fee based business.

The arguments of some IFAs that smaller investors won't be able to get advice seem totally self-serving and disingenuous. If IFAs could do business with those client for a few hundreds pounds-worth of commission then they'll be able to give the same service for that amount when paid explicitly by the client - and the small investor will then get the ongoing service he pays for with trail commission that he's unlikely to get now. Even better, for his money he might get proper advice rather than advice designed to generate enough commision to cover the IFA's time and the IFA will have an incentive to offer investments offering good value rather than just high commission..

RDR should help but won't solve everything. Although IFAs won't be paid commission by the product providers, they could still be paid commission and bonuses as they are now by their employers. We'll know just how successful it's been in improving the standards of financial advice in a few years time.

dunstonh

This thread is not about IFA trail commission or anything to do with that. It is to do with platforms and the rebates paid to platforms by fund houses. For many of the DIY investors here, they will have HL for example and will be affected by this. Typical rollinghome and darkpool in trying to turn it into anti-IFA when it has nothing to do with that.

dunstonh

News is now coming out about the platform rebates.

FSA to ban platform rebates - however, timescale not set.

http://www.citywire.co.uk/new-model-adviser/fsa-plans-to-ban-provider-kick-backs-to-platforms/a512665?ref=new-model-adviser-latest-news-list

more info:

http://www.citywire.co.uk/new-model-adviser/regulator-stands-firm-on-platform-cash-rebate-ban/a512156?ref=new-model-adviser-latest-news-list

Reaper

So they have been researching this since last November and still have not finished, and will not for at least another year and a half:

It did not give timescale for when the ban would come into force but said that any rule changes would not come into force until after 31 December 2012.

I wish I had deadlines like that at work.

jamesd

Yes, it's disappointing that the FSA has decided to leave things up in the air for longer. At least it's some gradual progress.

dunstonh

HL's share price has taken a hammering today. Down over 11% currently.

The FSA paper hits their model hard. Peter Hargreaves has hit out today at the FSA and seems to think he can get the fund houses to keep paying HL the full amount

http://www.citywire.co.uk/new-model-adviser/hargreaves-hits-out-at-fsa-execution-only-plans/a512845?ref=new-model-adviser-latest-news-list

gadgetmind

Thanks for that link - very interesting.

As it happens, I like HL despite the flaws. Yes, they do heavily push certain funds, presumably due to kick backs, but being grown ups surely we know how much notice to take of advertising? Yes, there are cheaper places to hold funds, and cheaper investment vehicles than funds, but HL are slowly reacting to this as they have to remain competitive.

I welcome greater transparency as I can use the additional information to guide my decisions, and where I'm buying a product through a middleman who's adding little/no value, I am *very* interested in the middleman's cut.