This week the Financial Services Authority published a Consultation Paper setting out policy proposals that would effectively ban payments by product providers to platforms, and cash rebates from product providers to consumers. Reaction from the UK’s wealth industry is mixed, with strong support from some and strong dissent from others.
The FSA says that platforms should not be funded by product providers but by a platform charge agreed upon and paid by the consumer. According to discount broker Hargreaves Lansdown, this change would result in about $30 million in extra costs direct to the consumer. The FSA’s argument is that the current setup lacks transparency and can inhibit a competitive market.
In an article in PR Newswire from May this year, the growing popularity of cloud platforms was noted, stating that market revenue in 2010 amounted to less than $44 million, and estimated that it would reach $523 million by 2016. The platform’s flexibility combined with the ability to reduce costs during the development, testing and deployment of new applications on a pay-as-you-go basis makes this a valuable service for smaller developers.
The FSA says its Consultation Paper is aimed at platform providers and product providers as well as ISA and fund managers, and advisory firms that provide or receive services from platforms. They also acknowledged that it would affect consumers who benefit from reduced costs through rebates. However they said that consumers should have the responsibility to be aware of the costs associated with platform use and should bear that cost rather than leaving it to a third party.
The proposed reforms are expected to take effect by the end of this year, though FSA says that life insurance companies will be exempted for the present, subject to further consultation. FSA also noted that many platforms have already begun to change their business models for fees and revenue. One UK wrap provider, Skandia, is reported to support the changes even though its market segment would be significantly impacted.