Advisers and providers alike have been left scratching their heads at the regulator’s highly anticipated platform report, published last week. Its approach has been branded out of date, wrongly targeted and its conclusions simply ‘unjust’.
The Financial Conduct Authority (FCA) made much of how platforms could be buying business from IFAs through ‘non-monetary’ benefits. But its year-in-the-making report was silent on the single-platform arrangements used by the very biggest advice firms.
It also failed to address more colourful practices such as the offer by a platform of a boozy trip abroad as reward for assets placed, as revealed by this publication last year.
Instead the regulator delivered a warning shot to advisers about non-monetary benefits, or inducements. It said: ‘Some platforms supply services paid for by consumers, which might alter an adviser’s incentives, without considering whether the provision or receipt of the service might constitute a non-monetary benefit, which needs to comply with our inducement rules.
‘Both financial advisers and platforms should consider whether the non-monetary benefits they receive or offer comply with the FCA’s inducement rules.’
Specifically the FCA highlighted: training for advisers on exams and business management; model portfolio management; bulk rebalancing and switching; and white-labelling. It said these were areas that can ‘potentially distort advisers’ incentives when considering which platform to choose and could create barriers to switching platform’.
Proof of progress
Nathan Fryer (pictured below), director of Surrey-based outsourced paraplanning firm Plan Works, said tools such as portfolio rebalancing were not swaying advisers, and said white-labelling should not be classed as an inducement at all.
‘If I make beans and Heinz asks me if they could buy my beans and put Heinz on the label, do I really care?’ he said. ‘Other than making the adviser seem more scalable and a bigger business, I don’t see how that is an inducement. Would an adviser choose one platform over the other because it can white-label? I don’t think so.’
Fryer said the FCA should not be fussing over the bells and whistles platforms offer.
‘Platforms are trying to drive assets onto the platform and anything that helps the adviser could be considered an inducement. But, providing we are within decency limits and the client is not suffering any detriment, I don’t see what the huge issue is,’ he said.
Charles Chami (pictured below), director of Bristol-based Glamis IFA, said these platform offers show how much things have improved in advice compared with the days before the retail distribution review.
‘Historically inducements may have come in the form of high commission payouts, thankfully a thing of the past,’ he said. ‘These were detrimental to client investments and, in many cases, swayed recommendations made by less professional advisers.
‘The FCA now considering potential platform inducements to advisers, such as portfolio management tools, training and white-labelling, actually shows how far the profession has come. These things are relatively peripheral and unlikely to have a serious effect on an adviser recommendation.’
Alex Shaw, director at national IFA Progeny Wealth, said: ‘The FCA does not seem to truly appreciate what “inducements” really are. Surely advances in technology reduce costs, increase efficiency and free up more time to give the client what they are really paying for: good financial advice.
‘Training courses give the client an adviser who has increased and up-to-date knowledge, so how this isn’t seen as of benefit to clients is a mystery,’ he said. ‘Surely without these things, advisers would have to employ more staff or pay for additional training, which would simply increase prices to the detriment of the consumer. For me, these are not inducements.’
In any case, it seems platform providers do not plan to change what they are doing.
Standard Life will continue to allow advisers to white-label its platform should IFAs want this. A spokeswoman said: ‘It is clear to the client the service is being provided by the platform, so it is difficult to see how it could be considered a material inducement or a barrier to switching.’
Eyes wide shut
When it comes to possible IFA inducements, some are more eyebrow-raising than others.
Last year New Model Adviser® revealed national advice group and platform True Potential had offered advisers the chance to win a booze-themed trip to Berlin by placing at least £4.25 million of assets on the platform.
An email sent by True Potential encouraged advisers to check their progress on the ‘leaderboard’ of firms that had nearly hit the £4.25 million target or view the ‘departure board’ of firms that had already surpassed it. A beer stein was offered to those with ‘£1 million of qualifying’ business.
True Potential said the trip was ‘a continuing professional development event intended to support our advisers and enable them to continue providing the best service possible to their clients’. It said its compliance department had full oversight and was ‘confident’ it had complied with the rules and guidance from the regulator.
Such events were ignored by the FCA in its platform study, while instead it focused on the tools platforms provide for IFAs.
‘No cause for concern’
Some advisers have no choice over the platform their clients’ money goes to, except in limited circumstances: those who work for vertically integrated businesses. These firms typically own every part of the so-called distribution chain: managing assets or running segregated mandates and owning the intermediaries.
For example, Old Mutual Wealth advisers use the Old Mutual Wealth platform and St James’s Place partner firms use Bluedoor platform technology created by FNZ. Meanwhile, Openwork is moving to a single platform based on Zurich’s offer, while Standard Life-owned national 1825 is restricted to the Standard Life Wrap for new investment business.
Speaking to New Model Adviser® about the platform report, FCA director of competition, Mary Starks (pictured above), said the regulator did not plan to say anything about vertically integrated firms’ platform arrangements.
‘In terms of a starting point we don’t have strong views on vertical integration; we don’t think it’s a good or bad thing,’ she said. ‘So far we have asked a lot of questions on it and we have a lot of data on it and it didn’t cause a concern.
‘We looked a lot at fund promotion and best-buy lists. We found, although there was a bit of a tendency for vertically integrated businesses to promote their own funds, on the whole consumers were wise to that. It didn’t appear to be causing any distortion to the market.’
However Starks did accept the problem of inducements from platforms was not ‘widespread’, and said the FCA would only take action only if firms did not listen to its warning shot.
‘At the margins we found things where we thought “the client is paying for this but it looks like it is really benefiting the adviser”. There is a question of whether that falls foul of the inducement rules,’ she said.
‘We would like the advisers to take the opportunity after the interim report to have a think about their arrangements and get comfortable that they do comply with the rules. We are not looking to come down hard [on firms] at this stage but, having given this warning, they might find we will be less sympathetic [next time].’
Drawing the line
Bill Vasilieff, chief executive of platform Novia, said he was not sure where the regulator would draw the line when it comes to inducements. He said IFAs might have to start paying for more services that were previously free.
‘[The FCA] is saying, if we provide software that an adviser uses to run their business but the client never sees it, it would take that to be purely for the adviser and therefore should be charged for,’ he said.
The regulator has already taken action against free services. In March it ruled the offer of free pension transfer value analysis (TVAS) reports were inducements. This prompted Novia to begin charging £75 plus VAT for every TVAS request.
‘I don’t know where it is going to end up,’ said Vasilieff. ‘An awful lot of what we do, things like risk profiling and asset allocation tools, potentially could be caught depending on where the FCA draws the line. If these things were included, I think advisers would not want to use some of them.’
Hugo Thorman (pictured above), chief executive of Seccl, a cloud-based trading, settlement and custody administration system, and former chief executive of the Ascentric platform, said the FCA’s whole focus on platforms was misguided.
‘A hell of a lot of work has gone into splitting hairs on how the platform industry works and how platforms can play a bigger role when platforms are the third party. But advisers are most in control of relationships and an equal amount of value is taken by the fund managers. The smallest amount of the chain is the platform.
‘Yet the implication is that platforms should be doing more and playing more the role of the policeman in the affair. It seems unjust.’