FSA sets its sights on DFM panel fee

Defaqto has announced that the Financial Services Authority may ban DFMs from paying to be on a SIPP provider’s panel.

As part of a larger effort to improve charging transparency ahead of the retail distribution review, Defaqto has announced that the FSA may look to ban discretionary fund managers from paying to be on a SIPP provider’s panel.

In 2009, the regulator initially proposed to ban payments from product providers to platforms, because they identified “possible consumer detriment”. Then, in a paper last year, it said that while it still had concerns about these payments, it was unlikely to ban them.

Earlier this month, the regulator published a policy statement in which it said it would be “desirable” to ban cash rebates from product providers to investors and product provider payments to platforms. However, the paper made it clear that SIPP operators were not under review.

Furthermore, the FSA is currently assessing ways to improve pension scheme disclosure as part of its CP11/03 consultation paper.

In a journal published this week, Andy Leggett, leading Defaqto insight analyst, says the FSA is likely to turn its attention to “pay-to-play” DFM panel fees as it seeks to improve the transparency of provider charges.

He says: “DFMs paying to be part of a SIPP provider’s panel falls a bit short of what the FSA expects in terms of disclosure, transparency and understanding of how the SIPP provider gets paid and what it is costing the client.

“The SIPP providers will argue that it is keeping costs down, but at the moment I do not think the way relationships between DFMs and SIPP providers work are presented in a particularly transparent manner.

“I expect we will see increased disclosure requirements as a minimum, but it seems as though the FSA is prepared to go further, even if that goes against the majority of provider’s response.

“If the stance is really tough, this type of practice may not be allowed at all, and we could see a move back to specific administration fees.”

Head of Pensions Technical Services at Rowanmoor Pensions, Robert Graves says: “I think there is less need for regulatory conditions for providers who follow ABI guidelines on disclosure of fee schedules. Where the SIPP is being presented as a packaged product, with one fee that encompasses everything – that is an area I would expect the FSA to focus on.”

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