Ban on rebates or not?

In its policy statement PS13/1 the FCA signaled an end to rebates being paid to advisers or platforms for new business from 6 April 2014 and a total ban on existing rebates by April 2016.  However in a recent note to trade bodies the FCA now say that legacy rebates to retail customers could continue indefinitely and intend to consult again in September.  However this is dependent on the fund remaining in place without any switches; buys or sells taking place that would result in part or all of the fund being placed in funds which do not allow for cash rebates.

Unfortunately this will lead to a multi layered approach to share classes preventing payments to advisers and phasing these out over 2 years but allowing existing rebates to continue to be paid to customers that leave their investment alone without any kind of intervention.

Rebates to assets outside a tax wrapper have been taxed in the hands of the investor since 6 April this year and fund managers have to decide whether they want to continue with multiple share classes as clients depart to avoid tax payments and move to a more transparent clean share class.  Eventually the transition to clean share classes is likely to lead to certain share classes no longer being viable to run and so they may disappear completely anyway.

Some firms also intend to notify customers of block share class conversions regardless of the theoretical possibility that rebates to clients could continue indefinitely.  Where this will leave any remaining legacy clients is difficult to tell but either way it seems the era of rebates will come to an end despite the 'indefinite' nature of legacy rebates if they happen at all.

Published: August 2013
By: Anthony Smith

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