Several publications are reporting today that the FSA is set to grant a minor concession in their decision to ban cash rebates on investment platforms.
Cash rebates currently work as follows.
An investor paying the typical 1.5% annual management charge on the retail version of an investment fund receives a cash rebate of 0.75%.
This cash rebate reflects the part of the annual management charge that would typically pay for platform administration (0.25%) and ongoing advice (0.5%).
The FSA wants to ban these cash rebates, effective as they are, because apparently some advisers have been misleading their clients and suggesting they get platform administration and ongoing advice for ‘free’, paid for by these cash rebates.
Of course investors are actually paying the annual management charge which creates these cash rebates.
Investors receiving platform cash rebates are no better off; they do receive a more transparent pricing with each element of fund management, platform administration and ongoing advice charged separately and itemised as such within the platform cash account.
The FSA is minded to ban these cash rebates, to prevent misleading statements about ‘free’ services.
We understand their rationale for doing this. It would be easier, simpler and cheaper for them to mandate more robust disclosure when investors using advised or self-invested platforms.
The concession being reported today would allow cash rebates of up to £1 per month per individual fund continue.
Whilst not at the £10 level proposed by the Tax Incentivised Savings Association, it would go some way to reducing administration costs for platforms where small investment holdings generated the need for multiple unit rebates.
In a perfect world, only ‘clean’ share classes would be held on investment platforms, charging only the fund management charge – from 0.05% for a tracker fund to 0.8% for an actively managed fund.
Platform administration charges and ongoing advice charges could then be levied separately.
We look forward to seeing the FSA Policy Statement on this subject when it is published within the next few months, to better understand how any new rules in 2014 are best applied for our clients.
Photo credit: Flickr/HowardLake
