The Financial Conduct Authority (FCA), which is one of the two new UK financial regulators following the reorganization of the Financial Services Authority, has banned the use of payments to fund platforms.
The payments, known as rebates, are to be replaced by platform charges paid by product providers which are agreed with the investor.
The FCA says this will make the platform market more transparent.
Currently, providers of investment products, such as investment managers, generally pay a rebate to some platforms in order to have their products included on a platform. This rebate comes from the annual management charge, which is paid by the investor to the fund manager.
As a result, says the FCA, some platforms are able to give the impression that they are offering a free service, which means that the investor may not understand the true cost of the service provided by the platform.
The FCA also says it can be difficult for investors to compare prices and products available on different platforms. There is also a risk that these payments could lead to product bias in the investment market, as products offered by providers who are unwilling or unable to pay a rebate to the platform from their product charges may not have their products available to the investors using that platform.
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