Out-Law Guide 3 min. read

Regulation of charges on platform-provided financial services


This guide is subject to UK law and was last updated in June 2012.

From 31 December 2013 users of financial products bought via platforms will have to pay all charges and will not be able to receive cash rebates under Financial Services Authority (FSA) plans.

Before two sets of new rules come into force product providers can:

  • pay the fees charged by the financial adviser using the platform
  • pay the fees associated with the platform
  • provide cash rebates to customers using platforms

The FSA had initially set out rules stopping the payment of fees to advisers by product providers. It then published plans (44-page / 555KB PDF) to ban the payment of platform fees and cash rebates by product providers

A 'platform' is an online service that allows consumers to manage investment portfolios through an adviser or, in the case of direct to client platforms, by themselves.

In its most basic form, a platform aggregates data from several sources to provide a consolidated view of the client's total investments. Many platforms, however, also provide facilities for investments to be selected, bought and sold. Some platform operators use their platform to sell their own products as well as those of other providers. For more see What is a platform?

The FSA's proposals are intended to stop distortion in the financial products market caused by platforms offering only the products of providers that pay large rebates. The proposals are also intended to facilitate price comparisons between platforms for both advisers and consumers.

The ban on providers paying advisor fees will take effect on 31 December 2012. The ban on providers paying platform fees and cash rebates will take effect on 31 December 2013. They will apply only to new business occurring after those dates, not products purchased before then.

Why the change?

The FSA said that the changes are being introduced to lessen bias in the presentation of competing provider products on platforms. Without these measures customers would be more likely to choose products with cash rebates and advisors would be more likely to try to sell products with higher fees attached, it said.

Product provider payments to platforms "resulted in a marketplace in which consumers could not easily make price comparisons between different platforms and between the products that are available on those platforms", the consultation says. The new rules would facilitate price comparisons between platforms for both advisers and consumers.

The changes "would increase engagement on the issue of charges and could lead to consumers looking at different platforms in the market ...The proposals should also make it easier for an advisor to compare platforms," it said.

The rules are designed to address the fact that "products offered by providers who are unwilling or unable to pay a rebate to the platform from the product charge would not have their products available to the clients of that platform", the consultation said.

"When a platform has been able to negotiate a higher rebate from a fund manager for a particular fund, this is often linked to greater marketing activity being carried out for the fund, with more prominence given to that fund by the platform. In effect, the higher rebate is being used to help secure greater distribution," it said.

The new rules remove the potential that product provider payments influence the range of products hosted on a platform.

Consumers' view

The FSA commissioned research into what consumers thought about charging.

"Consumers considered the typical platform charge to be both fair and value for money, when it was presented to them clearly," it found. Making these charges transparent would remove the impression that platform services were free, it said.

It said that its rules would be likely to result in platforms becoming more consumer-focused and less adviser-focused.

Overall impact

Overall, platforms must improve the information they provide to customers to facilitate compliance with the proposed rules, the FSA consultation said. The proposed rules in the direct to client market sector are designed to strengthen customers' ability to make informed choices between platforms.

The rules should apply to both advised and non-advised platforms to create a level playing field and not distort competition between the market sectors, it said. This will prevent consumer confusion which may arise if a consequence of differing rules meant that different share classes were needed for advised and non-advised business.

The FSA said that it is unlikely that the bans on rebates will result in advised business being shifted to non-platform investment vehicles as they are not perfect substitutes for platforms due to the additional services offered by platforms.

There is a greater risk that direct to consumer business will be shifted off-platform. The FSA;s research indicated that this risk is offset by the price scrutiny placed on non-advised platforms.

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