For the uninitiated, RDR is the FSA's attempt at cleaning up financial services and reduce the likelihood that customers get taken for a ride by financial advisers and the industry in general. The main proposal is that commission payments to financial advisers will be banned and the rules are due to affect from 31 December 2012. You can read more details in my previous article.
The recent announcement concerns fund platforms (also referred to as fund 'supermarkets'), such as Cofunds, FundsNetwork, Skandia and Hargreaves Lansdown. On the whole platforms are a good thing, they provide plenty of investment choice (especially useful for ISAs and SIPPs) and simplify paperwork and administration.
However, there are a few potential issues the FSA is keen to address. They've been highlighted before, but the latest FSA update puts more flesh on the bones.
Payments by fund providers to fund platforms
Fund providers pay platforms to include their funds. The charge, thought to be around 0.25% or more a year, is normally paid out a fund's annual management charge, so customers indirectly pay the platform fees.
The problem with this is that it's not transparent, customers don't know how much a platform is getting paid so there's little incentive for platforms to complete on price. Plus those platforms who promote funds via 'best buy' type lists might be biased towards the funds that pay them the most money - customers have no way of knowing as things currently stand.
The FSA has said it wants to ban these payments, which I hope means funds will be priced at institutional rates for all investors then we'll be free to shop around for the best platform deal that suits our needs. However, the wheels of our financial regulator turn slowly and we're told any changes won't be implemented by the time RDR is initially introduced. Meanwhile it seems platforms will have to disclose how much they receive from fund pro0viders from 31 December 2012 - a positive start.
This won't please many fund platforms - Hargreaves Lansdown's share price fell over 12% today in response. But it should be a result for customers. (incidentally, Citigroup reckons Hargreaves Lansdown's average margin for Vantage clients is currently 0.68%).
Payments by fund platforms to customers
Fund platforms can pay cash rebates to customers, potentially helping to offset charges for financial advice (i.e. the customer might pay for some/all of the advice via product charges even after commissions are banned). The FSA doesn't like this as it muddies the waters on how much a customer is actually paying for advice and smells too much like commission in disguise. It plans to ban them, but again a final decision has been deferred until after 31 December 2012 - not very helpful...
Re-registering investments between platforms
As previously announced, fund platforms will have to allow customers to re-register their investments (i.e. transfer 'as is') between all platforms and nominee accounts by 31 December 2012. Good news, but why some platforms still refuse to offer this already is beyond me (must be protectionism...).
Advice and independence
Advisers will not be able to use one platform exclusively and call themselves independent. In practice they might have a preferred platform for the majority of the customers, but they'll need to consider and use other options when it's in their customer's best interests. Sound's sensible to me.
The FSA seems to be inching towards introducing some long overdue rule changes. I hate to think how much time and money they've taken to conclude something that would take the rest of us 10 minutes, but at least they're getting there...
And if all this sounds a bit boring and tedious, I sympathise , it's not a riveting read. But take it from me, this is important stuff that could potentially make a big difference over years to come.