The UK’s Investment Management Association (IMA) has warned that a regulatory proposal to ban cash rebates and payments to product providers in the platform market could increase administrative costs and deter investors with modest sums of money.
Earlier this week the Financial Services Authority (FSA) proposed to ban payments from product providers to platforms in the UK fund platform industry, and to ban cash rebates from product providers to investors.
It would mean that investors would pay platform fees directly. The IMA acknowledged this would bring more transparency to the UK retail funds market, giving investors a better understanding of where their money is going.
However, Julie Patterson, IMA director of authorised funds and tax, also said the splitting of payments would require the industry to overhaul its administration processes and mean that, in future, more firms will be administering much smaller sums of money.
It could affect the retail pension funds market, she said.
“There is a risk that the end cost of investing could rise as a result. There needs to be an efficient mechanism that facilitates these payments in a fully transparent way.”
She added: “There is also a serious concern that those with modest sums to invest will be deterred by these new measures, and that ordinary investors will no longer be able to benefit from bulk discounts currently secured by intermediaries that aggregate the orders of many investors.”
The proposal comes as part of the Retail Distribution Review (RDR).
Andrew Power, lead RDR partner at Deloitte, said the FSA’s platform paper confirmed its originally stated position and would cause platform providers to re-look at their offering and costs.
He added: “Asset managers who have been reliant on rebates to obtain shelf space on platforms will need to ensure their propositions still stand up in a cash rebate free market.”
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