The Financial Services Authority (FSA) is reviewing whether to place a deadline on legacy rebating through platforms as part of its final platforms policy paper, which it is expected to publish next month, according to reports by Investment Week and Money Marketing.
A legacy asset is a retail investment product purchased by a client before the FSA's Retail Distribution Review (RDR) rules came into force at the end of 2012. Under the RDR legacy commission – sometimes owed by product providers or fund managers to financial advisers when changes are made to products advisers' clients have invested in – is generally prohibited, although trail commission – where advisers are paid by product providers for providing ongoing advice on legacy assets – can continue to be paid.
However, up until now product providers have been permitted to pay cash rebates via platforms for changes in legacy business. Cash rebating in a platforms context is where money is credited to investors' platform accounts as part of the incentives they offered for investing in their products. Sometimes advisers and their clients agree that advisers can take a portion of rebates as payment for their personalised recommendations rather than clients having to pay a straight fee for those services.
The FSA, though, is currently reviewing to what extent, if at all, cash rebating should be permitted. It is similarly reviewing whether another form of rebating, where product providers credit investors with units that they can reinvest in retail investment products, should be allowed to continue.
Under its RDR regime the FSA has sought to make payment arrangements in the retail investment market more transparent after raising concerns about suitability of advice being given to investors as a result of the incentives on offer to advisers to recommend particular products.
The RDR rules now require that advisers are only paid directly from their clients for the personalised recommendations they make. They are barred from receiving commission from product providers and, if labelling themselves as offering 'independent' services, must provide advice based on a consideration of all suitable products available in the market relevant to clients.
In addition to setting rules on cash and unit rebating, the FSA now appears ready to put a deadline on legacy rebating, according to the Investment Week and Money Marketing reports.
In December the FSA told Out-Law.com that the platform market reforms would not take effect until a year after it had published its finalised platform rules.
