FCA publishes rules on charging model for platforms

The Financial Conduct Authority (FCA) has published rules to ensure the way that platforms are paid for is more transparent.

From 6 April 2014, platforms in both the advised and non-advised market will not be allowed to be funded by payments from product providers.

Instead, a platform service must be paid for by a platform charge, which is disclosed to and agreed by the investor.

Currently, providers of investment products, such as investment managers, generally pay a rebate to some platforms in order to have their products included. This rebate comes from the annual management charge (AMC), which is paid by the investor to the fund manager.

As a result, some platforms are able to give the impression that they offer a free service, which means that the investor may not understand the true cost of the service provided by the platform.

The FCA is making changes to ensure that investors can make fully informed choices if they wish to use a platform and understand what they are paying for.

The changes include:

  • Making the cost of the platform service clear to investors by ensuring that the platform service is paid for by a platform charge that is disclosed to and agreed by the member.
  • Banning cash rebates for non-advised platforms to prevent these payments being used to disguise the costs of the platform charge.

Christopher Woolard, director of policy, risk and research at the FCA, said: “We have listened to industry concerns and have introduced rules that are proportionate, recognise how the industry works in practice and the competitive role platforms play in the market.

“We are encouraged to see signs that the market has already started to move to products that have transparent charging structures that help [users] in anticipation of this change.”

David Thompson, managing director of Elevate, Axa Wealth, added: “Clarification over the rules in this area is to be welcomed.

“Transparency was a key aim of the retail distribution review (RDR) and we support attempts to embed this across the industry.

“It is right that payment should be allowed for specific purposes to reflect the services that platforms provide to fund managers, such as corporate events, reporting information to fund managers and price errors, but not as a means of indirectly deducting client charges.”

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Although the rules will come into effect from 6 April 2014, platforms will have two years to move existing users to the new explicit charging model.

At the end of the two-year transitional period on 6 April 2016, platforms will have to charge users a platform charge for both new and existing business.