In my previous post (all your rebate are belong to us) I set out 3 wishes for the FSA platform paper we now know as CP10/29. The nice thing about the lang cat not being a vested interest is that I was able to take a bit of time to reflect before weighing in. Having done so, the big question is ‘did I get my wish?’
To recap, broadly what I wanted was:
- monitoring of rebates to the cash account rather than a ban
- all rebates to be passed on in full
- forced disclosure of margin take on cash investments.
So did I get my wish? No, not really. I didn’t get number 1, number 2 is a sort of maybe, and I didn’t see anything on 3 at all. Mind you, I could have been asleep by then.
There are a couple of things I think are worth picking up on. I’ll just cover one here – the cash rebate ban. This sits badly with me. When I read the paper, this paragraph jumped out at me:
“We do not want to see a situation develop where advisers set their charge dependent on what rebate is available to be paid into the client’s cash account, from which the adviser will then take their charge, as we feel this would undermine the objectives of the RDR. Accordingly, we propose for this reason to ban cash rebates to consumers.”Â (CP 10/29, p. 22)
What? Are we really saying that advisers, especially those using platforms, are adding so little value that they are still having to use the, my advice is free, line? And are these sad sacks going to be stopped by rebates only coming in the form of units? If so then we haven’t come nearly as far as I thought we had. This takes me back to Callum McCarthy’s speech at Gleneagles in 2006:
The consumer does no better than the providers under the present remuneration model. This suffers from product bias, provider bias and churn! Consumers are not always advised on transactions which fail to remunerate the adviser, or which offer little by way of commission to the adviser! Provider bias is clear: I am struck by the prevalence of examples of providers managing demand, up or down, by adjusting commissions which can lead to less suitable or even unsuitable sales! at present it is clear that the way in which firms are managed when the commission model applies frequently fails to mitigate these high risks of inappropriate advisory and transactional activities taking place.
Sorry for the long quote, but what I’m driving at is that we still seem to be mistrusting IFAs, even in an environment which is massively more transparent than the retail model under discussion at Gleneagles. I just can’t see the need for a ban here. Monitoring, certainly, and a warning shot, but a ban seems daft.
It all leaves me a little bit depressed, to be honest. Maybe I need to watch a small thing to make your life better again to cheer me up.