DP10/2: Platforms
DP10/2: Platforms: delivering the RDR and other issues for discussion
In their separate discussion paper on platforms, DP10/2, the FSA have announced that they intend to take a new approach to regulating the use of these systems - their main concern being poor disclosure documentation and lack of clarity of how charges are presented. On the key point of platform remuneration, the FSA have stated its preference as stopping all forms of rebates and payments by product providers to platforms and has stated that "a firm with a varied set of customers is unlikely to be able to use a single platform for all their customers".
DP10/2: Platforms: delivering the RDR and other issues for discussion
The discussion paper follows on from the thematic review announced in FS08/01 which has now been completed by the FSA.
For platform providers the FSA undertook an in depth review of 12 platforms and found a mixture of good and poor practices. Most specifically in the poor practice identified there was a lack of customer focus and poor disclosure documentation and clarity on charges. The FSA have also highlighted the main reason for unsuitable advice being given has been found to be the failure to consider the suitability of the overall solution, including the combined costs of funds, products, platforms and advice.
As a result of the findings the FSA will be making the use of platforms a supervisory priority and will take tough regulatory action where they find unsuitable advice and weak systems and controls.
The FSA have concluded that they do need to modify how they regulate platforms in the future and have set out a number of key principles to ensure RDR objectives are not undermined:
- That platforms do not offer incentives which result in consumers incurring additional costs from the unnecessary switching of investments,
- Those consumers have a clear description of charges and services they receive.
Rebates from product providers under the spotlight
The FSA have reviewed in detail the issue of platform remuneration and particularly considered the issue of rebates from product providers which has been a key outstanding issue for RDR for sometime. In relation to this they have concluded that their preferred approach would be to ban all such payments from product providers to platforms but have stated that this is not their final position and will consider responses and also the implications in relation to other requirements such as MiFiD.
Platforms should administer adviser charging
On the subject of adviser charging the FSA believe platforms should be required to administer this to the same standards as required by product providers. Importantly this includes the validation of customers' instructions and the ability for customers to instruct ongoing payments from their cash account to cease.
The FSA are also proposing to make re-registration capability to exit the platform compulsory for all platform providers by 31/12/12 and in the meantime will require advisers to consider this in their platform selection.
Costs of using cash accounts should be understood
The FSA have paid special attention to the use of cash accounts which suggests this has been identified by them as a key issue. Consumers must be given clarity on the costs of using the cash account and clear disclosure of any interest retained by the platform.
Concerns over the use of inducements and soft commission
The FSA have also highlighted their concerns regarding the potential for inducements and soft commissions in relation to platforms and have stated their desire to ensure this does not become a channel for commission like payments. They have particularly referenced the risks associated to provider owned platforms in relation to inducements with a clear signal that these will not be allowed. Specifically they have focused on planning tools which will be required to appropriately manage conflicts of interest in relation to its owner's products.
Does the use of a single platform conflict with independence?
The FSA have more specifically addressed the issue of independence relating to platforms by saying "A firm with a varied set of customers is unlikely to be able to use a single platform for all their customers".
Tax wrappers need to be considered at an individual level
Critically they have also addressed the issue of tax wrappers by stating that these are not benign and have specifically referenced this to the definition of whole of market using the example of an investment bond wrapper and the need to consider suitability of the wrapper at an individual client level.
The FSA are considering wider implications of platforms
In addition the FSA are also considering in detail the implication for consumers when investing in authorised investments through platforms rather than directly in relation to the information received and a number of other significant issues such as voting rights. The FSA are also considering reviewing capital adequacy.
