The Financial Conduct Authority (FCA) is to ban “bundled” rebate payments from fund managers to platforms, thereby forcing fund distributors to introduce a single, clear charging structure that investors must pay when buying funds through a platform.
At present, fund management groups generally pay a rebate, also known as trail commission, to many platforms in order to have their products included on it and the amount is usually between 0.25 and 0.5 per cent of the annual management charge (AMC) paid by ordinary investors.
As a result, some platforms claim to offer a free service, although it isn’t, which can confuse investors. It also makes it difficult for them to compare prices and products available on different platforms, while there is a further risk that some platforms are only offering funds by fund management groups that pay them the rebates, thereby creating the potential of “bias”.
The regulator said the changes will make the cost of the platform service clear to investors by ensuring that it is paid for by the single platform charge which is disclosed to and agreed by the investor. It will also ban cash rebates because they can be used to disguise the costs of the platform charge.
The rules will come into effect on 6 April 2014 for new customers, but platforms will have until 6 April 2016 to move existing customers to the new charging model.
Christopher Woolard, Director of Policy, Risk and Research at the FCA said that the new rules will ensure that platforms put customers at the heart of their business so they know what they are paying and the service that they can expect.
He added that the changes will allow both investors and advisers to compare the costs of investing through different platforms and make an informed decision on whether using a platform represents good value for money.
Marc Stemmer offers financial planning advice to businesses and individuals; helping them to achieve their financial goals.