FSA Platform decision undermines RDR
The FSA has spent nearly three years consulting on how its rules banning commissions should be made to apply to so-called platforms: businesses that provide transaction and custody services to individual investors and their agents. Platform business formats vary between execution-only brokers who provide access to either securities or funds, fund supermarkets and administrative ‘wrap’ platforms for advisers’ exclusive use. The access they provide to funds is always to some extent limited by the financial arrangements agreed between fund providers and the platform, even though the form and level of payments may alter between them.
These payments formed a key focus for the FSA’s RDR commission rules. Extending a commission ban to platforms risked undermining a firm’s business model (many are performing badly financially anyway) but not doing so invited the risk that platforms would allow investors and their agents effectively to avoid the commission ban by making greater use of platforms for that purpose. Clearly, therefore, platforms were always crucial to the effectiveness of the RDR project.
After consulting for three years with providers, platform managers and agents, the FSA has decided to postpone any decisions about the cash payments between providers and platform, and about rebates from platforms to customers, that are absolutely fundamental to their business models before and after RDR. They have said no decision will be made before other RDR rules changes come into effect, 1stJanuary 2013.
Considering the potential for a commission ban to leak away to nothing if agents route all business currently earning commissions through a platform (a point made in our recent assessment of the RDR project), and considering that any different treatment of platforms from other forms of distribution would perversely encourage new biases in the marketplace, this is an astonishing admission of failure on the part of the FSA.
The failure is not so much one of indecision now but of strategic naivete and poor analysis at the outset of the role of platforms in modern distribution systems. This is a criticism of the FSA’s handling of the project. Since our earlier paper had made other criticism of process, we thought it was worthy of a press release.