The build-up to the FCA paper was tremendously over-cooked and the hype that surrounded it certainly wasn’t justified. In her blog on Friday, Holly Mackay, the managing director at Platforum, wonderfully explained it thus: “Great excitement today as the FCA published the long awaited PS13/1 confirming policy on payments to platform service providers and cash rebates from providers to consumers.
Wedding night blues
“On reading the paper it’s actually a bit of an anti-climax and it pretty much just rubber stamps what we’ve heard before. It’s a bit like a wedding night. Talked about for months and then it arrives and, well, I don’t know about you guys but I had quite a lot of champagne and… well let’s move on.”
For the first time in a long while, a paper published by one of the UK investment industry’s very own troika – the IMA, FCA and HMRC – was greeted with a distinct lack of moaning about its contents, particularly from the fund groups who have so far collectively maintained radio silence.
The platforms themselves joined together in agreeing it delivered exactly what was expected. Bill Vasilieff, Novia’s chief executive, summed up the communal platform view when he said: “We are in agreement with the FCA statement banning cash rebates. These in the past have led to conflicts of interest and were therefore detrimental to the consumer.
“The allowing of unit rebates I believe is largely a red herring as both they, and the de minimus requirements outlined in the paper will not, I believe, see the light of day given the HMRC decision.”
There are one or two items still on the FCA agenda as, for example, it feels there is a “strong argument” for similar rules to apply to execution-only business transacted through a platform as well as execution-only firms that white label a platform.
What we now have is a list of rules that cover the FCA objectives of protecting consumers and promoting effective competition in the interests of its consumers with transparency of dealings at its core.
The paper says: “One of the main outcomes of our rules will be to restrict the influence that product providers and platforms have on the promotion of one fund over another. This outcome is in line with our broader RDR objective of limiting any adverse influence product providers have on distribution and aligning the interests of intermediaries to those of their clients more closely.”
In effect, fund groups are simply product providers bound rigidly by cost at the expense of innovation and creativity, while platforms are finally seen for what they really are, a piece of technology that eases investment administration for intermediaries and customers alike.
So what next for fund distribution?
Rather than providing links to every fund available, platforms will start to condense the number of fund groups it has links to – with ten or perhaps as many as 20 a sensible number – and still be able to offer investors every asset class across different investment styles.
Platforms will offer bigger volumes of business to the groups in exchange for better pricing which will in turn drive volume business at cheaper prices…and the cycle continues.
This will not happen tomorrow though by 2020 this could well be the norm. Mediocrity of performance, poor service and a narrow product range will no longer be tolerated and those fund groups that choose not to co-operate will lose out.
Hargreaves Lansdown has already kicked this off with plans for a ‘pay and play’ service of a core list of 30 funds within its Wealth 150 (already closer to 100 thanks in part to poor performance) made of funds that that will offer the discount broker their best price.
Open architecture has had its day and a more active guided architecture approach will soon be more widely available. What will happen then is that fund groups and platforms will have to differentiate themselves, expand their fund offering and the cycle will turn once again.
Rob Thorpe, head of UK retail at Cazenove Capital, describes the period right now as “the start of the reversal of the cycle of expansion.” Very well put, sir…
