Wednesday, 27 June 2012

FSA to ban rebates for advised and execution-only platforms

FSA to ban rebates for advised and execution-only platforms.pdf Download this file 
Cash rebates to consumers
1.5 We have previously consulted in Consultation Paper (CP) 10/29
 on banning cash rebates 
from the product charges to advised consumers. The draft rules consulted on in CP10/29 
proposed a ban on the rebate of product charges in cash to retail clients for all advised 
sales of retail investment products, not just products sold through a platform. It is worth 
clarifying that the ban on cash rebates to consumers would apply to new business from the 
date of implementation of the rules and not to retail investment products purchased before 
these rules come into effect.
1.6 We confirmed this position after considering the responses to CP10/29. We said that we 
intended to move to a position where cash rebates were banned and that, because of the 
interaction between this issue and payments to platforms, we would expect to make both 
changes simultaneously. Our thinking has not changed on this issue, and the research we 
carried out supports the concerns we had identified with cash rebates. Our view is that 
cash rebates hinder transparency and potentially provide a mechanism for commission to 
continue being paid. 
1.7 This approach would not prevent rebates being made through additional investment into 
the product (unit rebating). We are consulting on reading these rules across to non-advised 
(direct to consumer) platforms, as the issues we have identified with transparency around 
platform payments apply equally to this market. 

Timing of the change
1.8 We said in PS11/9 that any rules we introduce in this area would not come into effect until 
after the introduction of the RDR rules on 31 December 2012. The research indicates that 
many platforms are already introducing an unbundled pricing model in time for the RDR, 
so charging an explicit fee for the platform service is unlikely to need significant further 
systems development, although it implies a considerable change in business model for 
some platforms.
1.9 Introducing the systems required for unit rebating may be more complex, with the time 
and costs required to introduce this differing significantly between firms. Based on the 
information we have obtained from firms, we consider that introducing the changes on 
31 December 2013 would give firms sufficient time to make the necessary changes. We aim 
to publish the Policy Statement confirming the final rules before the end of 2012, which 
would give firms over a year to make the changes. We also expect adviser behaviour to 
bring about change in this market, with advisers looking to use those platforms that will 
help support their move to an adviser charging model


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