11/10 FSA announces new proposals for platforms and retail investors

Financial services and regulation alert email

Wednesday 17 November 2010

As part of its ongoing Retail Distribution Review (RDR), the Financial Services Authority has today published a Consultation Paper (CP 10/29). This paper contains proposals designed to ensure that platform services used to buy and manage investments conform to the standards required by the RDR.

The proposals set out in today's paper have been developed in response to feedback from the FSA's Discussion Paper 10/2, published in March 2010, and include the introduction of a definition of a platform service into the Handbook.

The key aspects of the proposals are:

  • Increased transparency. The cost of advice will be decided by the client and adviser, rather than the adviser and product provider, and can no longer be hidden from the customer in the cost of the product.
  • Unbiased presentation of products. Advisers will be constrained to offer either independent advice which is free from restrictions or bias and which reviews the market comprehensively or restricted advice which includes having to explain the nature of the restriction to the customer.
  • Banning cash rebates. Product providers will be prevented from making payments that advisers could use to disguise the charge the customer is paying for advice, and which could influence advisers in recommending one product over another.
  • Easier re-registration. Platforms will have to allow their customers to transfer their investments elsewhere without having to cash them in first - a practice which can result in losses.
  • Improved disclosure. Platforms will need to provide information about the income they receive from fund managers and other product providers making it easier for consumers to compare between different service offerings.
  • Provision of voting rights. Platforms and other nominees will be required to pass on fund information and voting rights to consumers as if they had invested directly.

Sheila Nicoll, director of conduct policy at the FSA, explained their intentions:

"When the market opens for business in January 2013, the platform services used by advisers and customers must be able to deliver services that are consistent with the aims and objectives of the RDR. They will need to be ready to support a market where commission bias no longer exists and the myth of free advice is dispelled."

Richard Saunders, Chief Executive of the Investment Management Association, cautioned earlier today that "these proposals will in effect allow product providers and distributors to facilitate adviser charging in some circumstances but not others." He called upon the FSA "to consider carefully the unforeseen consequences of the Retail Distribution Review platform proposals, for example higher taxes and aggregate costs to consumers, before they finalise the proposed rules."

Next steps

The deadline for responses to the paper is 17 February 2011 and a Policy Statement should follow later in the year. The Handbook rules being consulted on would come into force on 31 December 2012.

The Consultation can be found here.