The Financial Services Authority (FSA) is planning to ban rebates on legacy business which are paid by fund groups to platforms from 2016, in a move which will shake up the platform industry and force providers to charge groups for additional services.
Investment Week, IFAonline's sister title, can reveal the FSA intends to stop platforms retaining rebates from fund groups on legacy business, and is giving them a two-year grace period to migrate clients on to new fee arrangements.
The new rules will be revealed officially in the near future, most likely in the upcoming platform paper.
Such a move will ensure platforms shift clients into new wrap-style fee arrangements, where the client pays an explicit platform fee.
While the regulator cannot force the issue by insisting clients are moved out of bundled share classes and into new clean share classes which have no trail or platform charge included, they can insist platforms rebate any extra margin paid by fund groups back to the client.
Such a transaction would be convoluted for platforms, potentially seeing them pay the additional rebate they currently receive from fund groups on their back-book of legacy money to the client, only for the client to then pay them an explicit platform charge.
As such, it is likely many platforms will seek to migrate clients into clean fee share classes to ensure a smoother process.
The ban on legacy deals is a more drastic measure than previously announced. It was assumed by some that deals on legacy books would remain untouched, with the focus only on new business.
A ban on legacy rebate deals will impact the entire platform market, including execution-only platforms such as Hargreaves Lansdown.
Hargreaves and others have a number of lucrative deals in place with fund groups which see them keep a chunk of a fund's 1.5% AMC currently.
Hargreaves Lansdown founder Peter Hargreaves alluded to such a ban when he spoke to Investment Week last year, and the group said it has been working on solutions to accommodate such regulation.
Skandia recently made plans to leverage its back-book of legacy life and pensions money by switching clients into its new Select range of funds over time where the funds held correspond with each other.
The Select range - a core range of funds branded as Old Mutual products - has been announced by the group, with Skandia planning to continue to take rebates from fund providers.
A move to ban legacy rebate deals could impact this model, although the implications are not clear as yet.
Mark Polson, platform expert and founder of website The Lang Cat, said: "This news will have a fundamental impact on those platforms with a bundled back book.
"The idea that more profitable legacy business could subsidise more transparent, low margin post-RDR business is - if this is true - effectively dead."
Most platforms - such as FundsNetwork, Standard Life and Skandia - have already introduced clean fee share classes and an explicit pricing structure on new business, in anticipation of a shift towards a rebate-free world, while most wrap platforms already charge an explicit fee for their services.
However, the inclusion of legacy back books may force some platforms to make up for the loss of revenue by charging fund groups in new ways.
Nearly all platforms currently provide a number of administration services for free, including detailing manager information and corporate actions.
It is likely platforms will start to charge for these services to help ease the hit to revenues.
The FSA declined to comment.
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