The FCA has published policy statement (PS13/1) on payments to platform service providers and cash rebates from providers to consumers.
The statement contains rules to make the way investors pay for platforms more transparent. In the future, in both the advised and non-advised markets, a platform service must be paid for by a platform charge which is disclosed to and agreed by the investor. This replaces the current practice of platforms being funded by "rebates" from product providers.
Under the current model, providers of investment products (e.g. fund managers) offer rebates to platforms in order to have their products included on those platforms. This rebate is taken from the annual management charge, which is paid by the investor to the fund manager. This means that platforms are able to give the impression to investors that they are offering a free service, which the FCA believes disguises the true cost of the service provided by the platform.
This causes difficulties for investors in comparing prices and available products on different platforms. The FCA also believes there could be a risk of product bias in the investment market, as products offered by providers who do not pay a rebate to the platform from their product charges may not be exposed to the investors using that platform.
The FCA is making changes to the system which 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; and
- 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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
