UK FSA considers changes to platforms market, could this be the start of full disclosure?

Written by Paul Holmes As the FSA considers changes to what it terms the ‘platforms’ market this moderate anodyne suggestion

Written by Paul Holmes

As the FSA considers changes to what it terms the ‘platforms’ market this moderate anodyne suggestion could have far more profound effects than many market participants will realise, particularly if their policy follows previous interventions…

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For decades the financial services industry in the UK managed to keep hidden the charges it passed on to customers when executing a transaction such as a loan or mortgage, once the financial services act was fully enacted brokers the wider financial industry had to clearly publish the cost to the consumer for each transaction. For example, if the broker made 700 pounds on obtaining a mortgage quote for a client the commission element had to be clearly stated, the customer would clearly see the cost and benefit to the broker before committing to the transaction.

If this latest FSA initiative follows the same pattern then before clicking ask or bid, buy or sell, you the retail customer, may have to be clearly shown the open commission charge each transaction would cost. I’m sure readers can engage their intellectual curiosity as to where the end game of this transparency policy could lead…

The UK based regulatory body the Financial Services Authority (FSA) is beginning a consultation period on proposals which could eventually ensure that investors, including currency investors and speculators, can make fully informed choices if they wish to consolidate all of their investments in one place on a platform whilst understanding exactly what they are paying for this service.

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Currently providers of investment products, such as investment managers, generally pay to have their products included on a platform. This cost is then passed on to the investor in the price of the product. The proposed changes will make charges clearer to investors and increase competition in the market. Both investors and advisers will be able to compare the costs of investing through different platforms and make an informed decision on whether using a platform represents good value for money.

To make charges clear to investors, the FSA is proposing a ban on all payments from product providers to platforms. This would apply whether an investor using a platform is receiving advice from an investment adviser, or has made his or her own investment decisions.

Sheila Nicoll, director of conduct policy at the FSA;

“Investors are increasingly using platforms as a convenient ‘one stop shop’ for their investments, but at the moment many investors have no idea what they are paying for this service, while some believe it is free. This needs to change. Today we are proposing changes that give investors and their advisers more control and mean that they know exactly what they are paying for a platform’s service.”

The FSA plans to publish its finalised rules on platforms before the end of 2012, allowing platforms over a year to implement the necessary changes to their business models before the rules come into effect on the proposed date of 31 December 2013.

The FSA is also seeking views on whether the ban on payments from product providers should be read across to the wider retail investment market, such as to life companies and Self-Invested Personal Pension (SIPP) operators.

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