The FSA today said in its long-awaited consultation paper platforms can continue to receive rebates from fund managers.
In a departure from its stance in March, when it expressed a preference for banning rebates, the FSA said platforms can continue to receive the payments from fund managers but insisted they must be fully disclosed.
The FSA says: "We have decided not to propose changes that would require product charges and platform charges to be separated (i.e. bring an end to bundled charging).
"Instead of this, we propose still to allow fund managers and other product providers to make payments to platforms for the administration services they receive, subject to improved disclosure of the payments to consumers and impartiality in the presentation of products.
"We understand that some funds can be bought more cheaply through funds supermarkets than wrap platforms. We recognise that this could change in the future, but this has further added to our view that payments by fund managers to platforms should be permitted.
"Otherwise, there is a risk that some consumers may end up paying more if we stopped bundled charging."
The FSA is also consulting on a rule that would ban firms that give advice (independent or restricted) from using any platform that presents retail investment products in a biased manner. This could include ranking funds according to the size of any fee or commission that the fund manager pays to the platform service provider.
"We accept that any platform with just a bundled charging structure is unlikely to hold many investments that do not pay them a fee. This puts those investments which cannot (or choose not to) pay platforms a fee at a potential disadvantage," the FSA says.
"However, this is not the only way to pay a platform for their services and we are aware that some platforms with bundled charges are planning to widen investment choice with an unbundled charges offering."
The overall compliance cost to the industry of the FSA's proposals is estimated at £127m one off and £25.3m ongoing.
Approximately £26m of the one-off and £9m of ongoing costs are due to the ban of cash rebates to consumers, while the rest of the costs are due to the disclosure of payments that platforms receive from fund managers and product providers (£25m one-off and £3m ongoing) and proposals on mandatory re-registration (£7m one-off and £2m ongoing).
However, the costs are a mere fraction of what they could have been if the FSA had gone ahead with its original preference to ban fund manager rebates.
Today's move follows a period of intensive lobbying undertaken by the supermarkets in an effort to convince the FSA to backtrack on its proposal to ban rebates - which they say enable them to negotiate best prices for customers.
In discussion paper DP10/2, the FSA suggested three proposals with regard to the thorny issue of fund manager rebates - keeping them, allowing them to remain but with full disclosure and banning them outright.
It said its preference was to stop all payments from product providers to platforms - although cautioned this was not a "final view".
Industry figures have speculated the banning of rebates would have necessitated the creation of multiple share classes for funds - a time-consuming and arduous undertaking.
The deadline for responses to the Consultation paper is 17 February, 2011 an a policy statement or final rules will be released as soon as possible later in the year.
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