On top of the fact platforms are still waiting for the final platform paper from the FCA, which has prevented many of them from finalising business models and must be unsettling to say the least, they now have the taxman complicating matters further.
The HMRC’s intention to charge income tax on rebates has added another layer of complication in a sector that is already in disarray.
Just a few days ago Momentum Global Investment Management said as many as two-thirds of the current crop of platform providers could disappear as a result of recommendations from the platform paper when it is published.
Discussing consolidation in the platform market, Russell Andrews, a client relations manager at Momentum, said: “If anything, the implications of CP12/12 [the FCA paper] may accelerate this exercise as platforms elect to close to new business to avoid the burdensome and expensive developments or become available to their larger competitors for acquisition.”
It is clear the pressure for platforms to get their business models bang on has never been greater. So who will triumph in the brave new platform world – Standard Life which plans to scrap rebates altogether by 2014, or Skandia which has opted to keep the rebate mechanism live and kicking?
Rebate or no rebate?
Speak to people at either business and they give a compelling case for their chosen method.
Standard Life’s Ross Easton, who was appointed head of wrap at the start of March, said the firm had always planned to stick with using rebates because they were a simple and efficient way of giving value back to investors, even when it became clear via the FSA (now FCA) that they would have to be given via units rather than cash.
When HMRC waded in, however, he said the value of those rebates became less obvious because higher rate tax payers would have to pay 40% tax on them.
On top of that investors might have to include them on their tax returns or even complete a tax return where they hadn’t had to in the past. For that reason Standard Life has made the commitment to abandon rebates from the end of the 2013/14 tax year.
Easton said the scale of Standard Life’s platform, with £12bn in assets under administration as at the 31 December, means it has buying power and for that reason fund groups had been open to the idea of ‘preferential share classes’ which are also being called ‘super clean share classes’.
The company is confident it can secure super clean share classes in the majority of cases and believes the simplicity achieved by scrapping rebates will work best for customers.
Skandia, on the other hand, has plumped to continue with its unit rebate mechanism, partly it seems because it was further down the road of developing such a business model.
A spokesperson for Skandia also said that keeping a rebate system in place would allow them flexibility in instances when fund groups chose not to give the platform preferential rates.
The power of size
Considering Skandia has £42bn in platform assets, it is highly unlikely they do not have the same buying power mentioned by Easton.
So either Standard Life is unrealistically optimistic about the fund groups getting behind super clean share classes, or Skandia is not using its buying power to the best of its abilities.
Or perhaps the two have chosen to go down such different paths for reasons known only internally.
The latest rumours on the publication date of the FCA’s platform paper range from “by the end of April” to “either in May or June”.
Hopefully there will not be too many more shocks for platform providers as they have had to act with speed in response to the HMRC initiative and further tumult would not necessarily benefit advisers.
Transparency of charges should be welcomed and in a competitive market there is no reason why the biggest shouldn’t command attractive rates.
A certain level of consolidation in the platform market is to be expected, but let’s hope it doesn’t inflict too much detriment on the level of choice available.
Would you rather your clients continued to receive rebates or that super clean fee share classes became the norm? Would it affect your choice of platform? Let us know in the comments box below…
