Product bias rules may apply to 'execution only' platforms, FSA hints

The Financial Services Authority (FSA) said that 'execution only' platforms sometimes provide customers with the impression that some financial products are better to invest in than others. It suggested that removing the ability of those platform providers to receive a commission on the sale of financial products featured could help address any risk of bias in those suggestions.

"If you go onto some platforms the sense you might get is that some of these funds are more prominent than others and there's an element of advice potentially, or something along those lines, when actually the reason why is to do with a commission bias element," a spokesperson for the regulator told financial news website CityWire.

"We've been aware of these kinds of issues and we've been thinking of how to address that in a way that is workable. [The non-advised market] is something that we're looking at in terms of bias. We wouldn't want that [bias] because we don't think it fits with the requirements of what we want to achieve with the retail distribution review," the FSA's spokesperson said.

Platforms are online services that allow financial advisers to manage their clients' investment portfolios. Some platforms can be used by customers directly.

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.

The regulation of platforms has become an area of increasing focus for the FSA with an increasing number of consumers turning to platforms as tools for the management of their investments.

In 2010 the FSA set out major plans to overhaul the regulation of platforms following a Retail Distribution Review it had conducted into the market. In August last year it published final rules aimed partly at providing greater transparency over charges consumers face when using platforms, while also signalling a need for some further research and promising another round of consultation on new draft rules after the results of the research had been considered. The FSA has not yet released details of its findings..

The new rules force investment advisers to "take reasonable steps" to ensure that their choice of platform does not bias their selection of products for consumers. Platforms are also required to present their products in an "unbiased manner" and they must also "meet the same standards as product providers when they facilitate adviser charging." Platforms are also required to "disclose any fees or commission offered to them by third parties in advance of providing a service to customers."

The FSA spokesperson's comments reported by CityWire suggest that the 'bias' rules will be equally applicable to 'execution only' platforms used directly by investors as to platforms used by advisor firms to provide customers with advice over investment choices.

The new rules were set to take effect from the beginning of next year, but the regulator recently proposed delaying their introduction by a year.