While catching non-advisory platforms like Hargreaves Lansdown’s Vantage, the FSA’s new definition encompasses all execution-only dealing services that include a custody facility. Currently, these may not necessarily be referred to as ‘platforms.’
The FSA says as RDR tackles the advice regime, most aspects of these execution-only services fall outside its rules. However, it does now mean any commission or fee arrangements they have with third parties such as product providers will have to be disclosed.
This is likely to lead to greater clarity for consumers in what providers pay firms such as Hargreaves or Bestinvest for distributing their funds.
In addition, funds on such services have to be presented without bias. This could spell the end to guided or best-buy lists that some execution-only brokers employ where there is a commercial aspect to such services.
The extension of the platform definition also catches ISA managers if they distribute the funds of more than one provider. Still excluded from the definition are life companies, Sipps and admininstration services provided by private client managers.
Adviser charging
Cash accounts on platforms may be used to fund adviser charges, which would mean advisers could cancel units from client holdings in order to fund the account.
The FSA does not spell out any guidance on unit cancellation beyond advisers ensuring it is in the individual investor’s best interests. As part of its ongoing supervisory work, the regulator also intends to keep tabs on adviser use of unit cancellation to make sure it’s not just being used to suit them rather than their clients.
The use of adviser payments from cash accounts mean platforms will need written proof the client has agreed the charge and arrangement.
There has been a question that this could mean platforms or providers would need to contact an adviser’s client directly. However, the FSA has now clarified there is no need so long as the adviser can provide them with proof, such as a copy of a form signed by the client.
Single platform
IFAs can still use just one platform but the FSA stresses they need to be able to demonstrate why and that it is in clients’ best interests. That includes not recommending products off the platform, the FSA says.
The regulator notes using a particular platform could influence an adviser’s independent status. As such, while not banning the practice outright, the FSA cautions against the use of a sole platform. It says an independent firm faces significant challenges in complying with its RDR rules if they, for example, exclusively or extensively use a platform that only features products that pay the platform a rebate.
Re-registration
The FSA is holding firm with its original plans to make in specie re-registration of investments on platforms compulsory. However, it has held off implementing any timescales in this matter.
It says down the road it may look to see if some providers are causing unnecessary delays and may consider further rules if that is the case.
Investor information
This has been a complicated and costly area brought up in the FSA’s previous RDR platform discussion paper. Under it the FSA wanted platforms to send investors regular fund information as well as details of any key fund changes they are notified of, like a fund name change. To do so, platforms would need to contact clients directly and pass on what can be quite substantial documents.
Platforms disagreed and wanted the FSA to allow them to a) send the information to advisers and leave it to them to pass on to their clients or b) simply have an online section containing that information to which they could direct investors.
The FSA has conceded one point but not the other. Platforms can notify advisers but they have to do so in conjunction with sending the information to the advisers’ clients.
However, instead of sending the information via email with attachments, platforms will be able to send an email with a link to a portion of the site that contains the information. This eases much of what platforms believed would have been a significant costly service.
Ed Dymott, head of commercial for Fidelity International, says this is one key area of the platform paper whereby the FSA’s proposals may actually reduce costs.
While even reduced administration of this nature still poses an expense for platforms, they will not be allowed to pass these on to investors. At the moment many platforms do charge providers for the service of fund notifications.
As part of the eased investor information requirements for platforms, the FSA is also considering enacting easier rules in this regard for all product providers. It will be examining whether providers themselves should be allowed to simply issue investors an email with a link to the document.
