BLOG: “What’s in a name?”RSS icon

Written by Chris McCullam on Tuesday 7 May 2013

An oft mentioned phrase when it comes to our industry regulator is ‘unintended consequences’, which to me just suggests we work in an extremely complex industry with a load of historical baggage, where people are always looking for the angles and there’s a whole bunch of people who ask the ‘yeah, but what about/if’ questions. My ‘yeah, but’ question today comes having read this little article on FT Adviser about bundled charging.

The question isn’t about how bundled charging is now ok for industry participant A after it was pooh-pooh’d when done by industry participant P. It is more on the nature of the platform service being purchased. Terms such as fund supermarket and wrap were the initial distinctions but the market developed and the distinction between them blurred (if you ignore the charging models) and there has been much more discussion during the RDR and platform regulation papers about what a platform is, such that a definition has been enshrined in the FCA handbooks.

As agents of product providers in distributing retail investment products (pretty much funds as far as I can tell) the FSA had cause for concern over an advisers choice of platform; making sure the platform they used was the most suitable for the client and not the one that gave them the biggest rebate or the most commission. This concern was such that the FSA strongly suggested that an adviser would be hard pushed to find a single platform that could adequately meet the needs of all of his clients and would therefore probably need to be using more than one.

The ‘bundled adviser charging’ question lead me to wonder if an adviser firm decides that they will pay the platform charges being levied by the platform service provider (because it gives them great benefit in the administering and management of a client portfolio, etc.) does this move the platform into the realm of all other systems/tools that an adviser firm can purchase/use to aid them running their business and the type of private client investment manager/adviser that was excluded from the definition of a platform service in PS11/09 (page 9 to be precise).

I think it might because, referring to the definitions, a platform service is a service which:

(a) involves arranging and safeguarding and administering assets investments; and
(b) distributes retail investment products which are offered to retail clients by more than one product provider; but is neither:
(c) solely paid for by adviser charges; nor
(d) ancillary to the activity of managing investments for the retail client.

If an adviser firm chooses to pay for a platform as part of their suite of services offered to the client then it surely fulfils criteria (c) as the adviser firm has no other source of income other than adviser charges with which to pay for any of the systems/services/utilities they use to run their business.

If that is the case then an adviser firm should be able to use whichever single platform they wish so long as it takes reasonable steps to ensure that it uses a platform service which presents its retail investment products without bias and has done so honestly, fairly and professionally (to paraphrase COBS 6.1F).

Maybe this is an intended consequence and a step on the road to regulatory simplification; such that the adviser firm can choose the most appropriate services and systems to run their business (restricted or independent) while appropriately qualified advisers are transparently paid by clients to make personal recommendations according to the clients needs.

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