So goes the consensus of the industry following the FSA’s long-awaited publication of a consultation paper on platform rebates, which at first look achieves the aim of giving advisers and investors greater transparency when selecting funds.
At present providers of investment products generally pay to have their products included on a platform, a cost that is then passed on to the investor in the price of the product.
The FSA said the proposed changes, which suggest banning payments from product providers to fund platforms will make charges clearer to investors and increase competition in the market.
"Both investors and providers will be able to compare the costs of investing through different platforms and make an informed decision on whether using a platform represents good value for money," the regulator added.
Industry views
Immediate industry consensus following the publication of Consultation Paper 12/12 (the platform paper) stated there were few surprises in it.
Andrew Power, leading RDR partner at Deloitte, said: "The FSA’s platform paper confirms its originally stated position and is in line with the principles behind RDR of transparency and elimination of bias.
"It will cause platform providers to re-look at the offering and costs to ensure they can remain viable in a more transparent world where platform fees are likely to come under pressure."
Meanwhile trade bodies for both the open-ended and closed-end sides of the funds industry welcomed the eventual confirmation of the FSA’s stance.
The Association of Investment Companies said it was a win-win for investors and reduced the risk that competition could be distorted by providers buying access to distribution. It also said the proposed model would encourage platforms to hold the broadest range of investment products including investment companies that have not paid for access in the past.
On the other side of the piste, the IMA welcomed the move towards greater transparency, but added that "the splitting of payments will require the industry to overhaul its administration processes and mean that, in future, more firms will be administering much smaller sums of money. There is a risk the end cost of investing could rise as a result. There needs to be an efficient mechanism that facilitates these payments in a fully transparent way."
Bigger blow to wraps
Skandia agreed that a ban of cash rebates would be a blow to revenues, but more so for wrap platforms.
The firm said it welcomed the FSA’s decision as it had been a "lone voice arguing that unit rebates will deliver better outcomes for customers". Under the FSA’s proposals fund rebates used to purchase additional fund units will continue to be permitted.
Skandia said it had campaigned for this because investors seek units in funds, not cash, and accumulating cash balances distorts asset allocation. In addition, it said cash rebates create liquidity in wrap platform cash accounts which can potentially obscure the costs of the platform and advice from customers.
Peter Mann, chief executive at Skandia UK, said: "Most wrap providers seem to have been more preoccupied with changing the regulator’s mind on this issue than building an alternative solution.
“Wraps now face a couple of major challenges that they were hoping to avoid. Firstly the liquidity created by cash rebates in customers’ cash accounts has been removed which is a significant change for their customers. Secondly they are going to have to upgrade their systems to facilitate unit rebates and unit deductions to pay adviser charges."
Chance to respond
Interested parties now have until 27 September to submit responses to the platform paper, and the FSA plans to publish its finalised rules before the end of the year.
This will allow businesses over a year to implement the necessary changes to their business models before the rules come into effect on the proposed date of 31 December 2013, the regulator said.
Cofunds said it was extremely pleased to see the FSA had followed through on its original decision on rebates. "We judged the direction of regulatory travel correctly last year, which is why we took the bold decision of being the first platform to announce our new pricing model, which we aligned with the true spirit of RDR by making it completely transparent.
"Rebates mask the real cost of the process and the decision to ban them is an essential step towards enabling people to accurately assess the value of the service they’re receiving," Cofunds added.
Fidelity: finally a distribution review
Meanwhile, Fidelity was among the first asset managers to share its view stating that it will continue to work with the regulator to resolve any areas that need refining during the consultation process.
"We are comfortable with the timelines, however, the detail needs to be worked through to understand the practical implications," said Ed Dymott, head of business development at Fidelity Worldwide Investment.
"Before today, RDR risked being purely a review of financial advice. However, the FSA seem committed in broadening this to other parts of the market and actually making this a distribution review. This is a sensible step, but we are concerned this addresses just a fraction of the current market. We will fully engage in the consultation process to ensure the FSA objectives can be effectively achieved," he concluded.
Who do you think has truly grasped the mettle of the consultation paper: the platform providers, fund houses, or industry bodies? Do you think the benefits will filter through to you as the FSA envisages? Use the comment box below…