Billy Mackay, marketing director at AJ Bell, has said the FCA should consider relaxing the ban on the payment of cash rebates from fund managers as part of its market study if it wants platforms to get a good deal for investors.
I know Billy, we discussed it and I completely disagree with him. I think those would be retrograde steps and it’s nonsense, really. Since we introduced clean share classes the universal feedback – and I have never heard anyone saying anything different – has been always to favour them. The consumers do not understand rebates, which always carry some level of uncertainty in regards to what’s under the surface.
When the RDR abolished trail commissions, it was agreed by all our advisers that they would move to clean share classes as soon as possible, because having different charging structures in place just adds further confusion.
Having said that, with our global presence we offer different charging structures to reflect the differences in the various markets. We do offer rebates as well as clean share classes, but 99.9% of our business is based on the latter.
The FCA review might result in new legislation. In your opinion, is that going to be the case?
Some action is indeed needed. For example, we are completely against exit fees. Quite a few platforms have extra charges on top of their standard fee and the FCA has already said they are unhappy with that, but they still exist.
We think they should be completely banned, as it is customer money and they should be able to move it around as they wish. Exit fees also make it more difficult for clients to move from platform to platform, so we would like to see that changed.
Otherwise, I think the market does function fairly well and I think it’s been good for consumers so far, so I do not see a huge amount of change coming out of this FCA review.
What is the change that you foresee happening in the international space? Is the FCA outlining the shape of things to come in global markets, too?
At a worldwide basis, there’s much bigger fish to fry. The biggest issue in international markets right now is the heavy sale of offshore bonds. Most of these products pay very high commission, are very poor value for money for investors and are very opaque.
That is a significant change, and it’s already begun to happen in some offshore markets. For example, in the Middle East they have announced a proposed change in regulation a few months ago, and that is due to come in in the next couple of years.
These markets are moving towards RDR-style regulation, and different countries around the world are in the middle of this process. It is the same as it was in the UK, where before the change in regime the market was very much driven by life bond sales paying high commissions. Offshore markets are going the same way.
