21st February 2013

A story of confusion and progress By Klare Baldwin, Head of Marketing, FundsNetwork

So ‘R-day’ arrived and thankfully the world as we know it didn’t blow up as many seemed to fear. However, while the passage of time has helped to clarify many things, confusion continues to surround some important topics. Chief among these areas of confusion is the widespread belief that 2013 has ushered in a world of exclusively unbundled or ‘clean’ pricing. This is not so and until such time as we receive final guidance from the authorities concerning platforms, pricing and tax, the ultimate destiny will remain uncertain. For the moment however, bundled pricing remains alive and well.

There is also a misconception that unbundled pricing is always cheaper – in fact, this is not necessarily the case, and indeed this explains why we, in keeping with our philosophy of leaving choice to advisers and their clients, have decided to continue offering both options.

More generally, in relation to platforms, we have long stated that while the issue of headline pricing is clearly very important, it would be unwise to view this as the be-all and end-all of platform differentiation. Fundamentally, the key objective of advisers is to get the best outcomes for their clients – focusing on price alone risks not achieving this. This view is strongly backed up by Platforum’s recently published guide on platform pricing. According to Dr Richard Bradley and Holly Mackay, establishing the specific needs and constraints of clients is of critical importance.

For example, some of the questions to ask in this regard could be about the average size of portfolios, the investment approach being pursued, how often trading is likely to occur and how much cash will typically be held in clients’ accounts. Getting a handle on these types of questions will then help to provide the right context or basis from which to ask the right kinds of questions on pricing, which in turn should help to establish the true total cost of ownership. For a typical investor, it’s the whole cost for the service being received they’re interested in, not the constituent parts.

Another area of confusion and potential disappointment has been around the issue of platform-to-platform re-registration. Many advisers will have found out that not all parts of the industry have conformed to the common standards and whilst the ability to move is there the automation and quick turnarounds hoped for are not yet. Without going too much into the finer details, a key reason for the lack of uniformity has been significantly different interpretations of the RDR rules, for example in relation to what constitutes a ‘disturbance event’.

To conclude then, it is clear that even though the RDR has come into effect, there are still some significant points to be clarified, including in relation to so some fairly key areas such as pricing and platform-to platform re-registration. Perhaps we should not be very surprised if some confusion persists and continues for a time because it is clear that the whole industry has had to deal with an unprecedented amount of regulatory upheaval of late. The really good news and source of optimism going forward however is that in this brave new world we are clearly moving in the right direction, with the platform world as a whole reaching new heights of competitiveness.

By Klare Baldwin, Head of Marketing, FundsNetwork 

First published by Professional Adviser 14 Feb 2013.

RDR