The knock-on effect of banning rebates is that the platforms that benefited from higher rebates, which by the way were usually hidden from public view, is that a number of bigger players are now demanding access to the cheapest share class price stating that a lower price is in the best interests of consumers. I think we would all agree with that – cheaper to the consumer is better. But it is when they say that they only want that cheap share class for their investors (the so-called superclean share classes) that you begin to see their true intentions: to squeeze others out of the market. So far we have seen a few fund managers say that they are not going to comply with these demands and none have said they will comply. The reality is that the fund managers do not need to give in to this pressure and are well and truly shooting themselves in the foot as this new price will surely become the standard market price. Any collusion by fund managers or platforms could well be challenged on the grounds of anti-competitive behaviour.
Finally we should ask what are the practical implications of complying with these new rules? Quite a lot, as it happens, and right up until 2016 so there is a lot of scope for confusion, poor implementation and delays. Judging by the problems some platforms have had in implementing the first phase of the retail distribution review adviser charging, I would say it is odds on that there will be problems. Take for example, implementing the HMRC ruling on taxing rebates. The actual implementation of the rules and collection of the tax is straightforward. But tying this together with the move to clean share classes could easily lead to massive client confusion. Arranging for ‘conversions’ from the old retail share class to the new clean class will become an enormous industry issue affecting fund managers and platforms across the industry and the different parties will naturally want to manage the process according to their own timescales and priorities. Then there is the implementation of new charging structures by bundled platforms, as described above. This will consume an enormous amount of time and resources, with severe penalties for getting it wrong, so implementing the change will tie up resources until 2016.
