By June 12, 2013 Read More →

AXA Wealth calls for two year sunset clause on the cash rebate ban

AXA Wealth believes platform paper position on rebates may be counter intuitive to the principles of RDR by favouring an old world model

The Financial Conduct Authority’s recent platform paper set out a ban on platform cash rebates, including legacy on cash rebates, from April 2014, with all other legacy business required to move away from rebates after a further two-year period ending in April 2016.

But this decision looks set to create an unlevel playing field during this two year transition, as ‘old world’ firms continue to pocket the fund rebates, but firms acting more in the spirit of RDR may be penalised by banning the  passing of rebates to clients from April 2014.

Mike Kellard, CEO of AXA Wealth, said: “It seems odd to me that those firms that are transparent and acting in the spirit of RDR, who return rebates to customers, are being asked to stop doing this without the two year sunset clause. It’s seems to go against the spirit of RDR, which I have always been committed to, for the platform paper to allow a platform that wants to keep the rebate for itself to be able to continue doing so for another two years but those who want to return the rebate to the customer must stop doing so by April 2014.

“It seems to me to be an unintended consequence of the platform paper, as it appears completely counter intuitive to the whole spirit that FCA has talked about in relation to its RDR goals, favouring what many might consider an old world approach over the more open, transparent and customer-friendly, new RDR world model.

“To help, we would like to see a two year sunset clause on the cash rebate ban so it comes in at the same time as the wider ban on legacy arrangements. If not, the transition may create an uneven playing field across the industry, disadvantage a significant number of advisers and their clients and place undue pressure on the platform industry. The RDR was designed to make things easy. If this arrangement is pursued it may fail the market and consumers.

“AXA Elevate is better positioned, and very advanced in its introduction of clean share classes – with over 1,600 clean share class funds on the Elevate platform and a further 1,000 to be added shortly we are well placed to manage the transition. This does though create an issue for the industry, particularly those providers who are developing transparent models but have yet to add sufficient number of clean share classes to their platforms.  We will seek a sophisticated approach to help maximise the value to the clients on this matter, as we have always done. I can’t see there would be any customer detriment for us, but this isn’t the case for all.

“If the ban on cash rebates goes ahead from April 2014 all existing wrap clients will need to move their investment holdings to clean share classes before this date. Clean share classes have been embraced by advisers on our platform and we firmly believe this is the future for charging structures.

“However, a forced migration in such a short period of time raises a number of issues for many platforms, advisers and their clients. First, they are reliant on all fund managers making all their funds available via clean share classes, which many have yet to do. Second, in the short term at least, some clients may see a rise in their charges when moving to a clean share class. Third, it is not yet completely clear whether the transfer to a clean share class is an advised event.

“The rules as they currently stand force some wraps to implement significant change in a short space of time. In contrast, less advanced fund supermarkets are being given several years to unravel their extensive legacy businesses and opaque charging structures and can continue to retain rebates from fund managers until April 2016. This will also disadvantage those advisers who have responded to the regulator’s challenge and adopted the new transparent adviser charging model.

“We fully support the introduction of explicit charges for platform services but this should be done in a uniform way, not in a way that will disadvantage those providers, advisers and clients that have embraced a transparent approach.”

About the Author:

Our in house editor who has many years financial services experience, and writes most of the journal entries you read on this site.

Comments are closed.