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All your rebate are belong to us (3 wishes for the FSA platform paper)

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This post was originally going to be a wishlist for the FSA’s platforms paper, expected later this week. But in the last 48 hours a couple of interesting things about rebates and margins have popped up that bear a wee bit of investigating.

First up, a rumour hit Citywire that FSA will ban rebates being paid to platform cash accounts. The comments board went a bit ape, but you can kind of see their logic. So while you can see that it’s fair that rebates per fund are dealt with per fund, this is going to explode the way that true wraps work. We are looking at multiple sells per month for small amounts, which on a typical portfolio with a dozen funds will lead to at least 144 more contract notes and lines on an annual statement. These sells will come from the general investment account and so there may be CGT issues.

The lang cat thinks that a ban is a bit daft. As long as the rebates come in properly (more on this in a sec) then let the client or adviser choose. I don’t see detriment either way, and getting the rebate to the cash account is certainly cleaner. Monitoring, not prescription, is the ideal regulatory course here and so that’s wish number 1 for DP whatever it is.

Second, it turns out Elevate aren’t always passing back full rebates to their clients. This is because the main insured business has negotiated a better deal than Elevate; this has proved tricky to administer so the larger rebate has been received on all monies but the fund managers can’t favour Elevate above, say, Skandia (who may have negotiated ‘favoured nation’ status). They may have disclosed this in general terms, but that’s not enough. First of all, AXA need to get global deals to stop this happening and secondly, they should discount their own charges to the 3% of clients affected so they make no extra margin and clients are no worse off. That’s the sign of a good provider. Respect to them if they’ve done this already; if not then advisers and clients should start putting the pressure on. So wish number 2 is that all rebates must always be passed on in full.

Finally, the vexed question of taking a turn on cash (where the interest paid on the cash account is less than is generated by the platform). This is in the news again because Ascentric have (rightly) declared their margin. Plus 5 points for so doing, but minus several more for not making it really clear to clients. Unlike many others, the lang cat thinks it’s fine for platforms to say to clients and their advisers, in order to keep overall charges low, we may take a margin on cash, but we will always tell you what that margin is. Then the market can decide whether it likes propositions with or without a margin take. Wish number 3? All cash margins must be declared.

All these really have to do with the fact that platforms should be the leading edge of treating customers fairly. I got into platforms in the first place because it looked like a way of creating a better industry. Every time providers sneak a bit of hidden margin here or there it just shoots the whole thing in the foot and backwards we go. We can’t help ourselves for some reason. The funny thing is, I don’t think clients mind paying a fair price for services. They probably want their service providers to make a profit. It’s when things are obfuscated, sneaky or hidden that they get upset.

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About Mark Polson

lang cat founder and boss. Expert on all things platforms, pensions and investments. Prolific writer and public speaker, even when people ask him not to be. Knows more about Scandinavian black metal than you, and isn't afraid to prove it.