Volvo, FCA Principles and platform due diligence

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Someone told me the other day that modern car seatbelt technology was invented in 1959 by a chap called Nils Bohlin working for that Swedish beacon of solid, reliable car safety, Volvo. Well done to Nils. An impressive achievement and one that has gone on to save countless thousands of lives. But wait until you hear this.

Instead of commercialising the heck out of this new invention as you might reasonably have expected, Volvo made the seatbelt technology patent open and free for everyone to use. For the greater good. Yes. Honestly. They felt it was genuinely in the best interests of all consumers that Nils’ invention be used by as many other car manufacturers as possible as quickly as possible. They thought that was more important than keeping it to give Volvo a commercial edge for a few years until their competitors caught up.

The platform language snowstorm

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Given the crazy weather of late I thought it appropriate to start this piece on platform language with a weather fact. The Central Siberian Yupik people have 40 separate different terms for the word ‘snow’, while the Inuit dialect, spoken in Canada’s Nunavik region, has over 50 including ‘matsaaruti’, for wet snow that can be used to ice a sleigh’s runners, and ‘pukak’, for the crystalline powder snow that looks like salt. In Platformland we have many terms with a wide arc of definitions and meanings. Usually these appear to be three letter acronyms – the likes of DFM and FUM being just two. The latest word to meaning different tribes in Platformland is clean share classes.

Is simple and fair pricing possible?

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Like most people, I want to know that I’m paying a fair price for what I’m getting. But pricing is not always fair or simple. Often it’s one or the other, but can it be both?

Pricing up a car

Most markets have different ways for building up the costs for a customer.

Take buying a new car, where you tend to get a base price, which varies depending on the make and model of the car.

A view on the FCA platform policy paper

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You will have seen that the Financial Conduct Authority has recently issued its platform policy statement covering new platform remuneration and cash rebate rules due to come into effect on 6 April 2014.

The paper confirms that some unbundled platforms (including our new business platform) are already compliant with the rules, a year ahead of the deadline. We also expect that many advisers will now need to revisit their platform due diligence to ensure that they can have confidence that their platform is fit for the purpose both now and in the future.

Fund rebates can continue to be passed in full to the customer in the form of units, whereas cash rebates will be banned.

Rebates, discounts and obfuscation

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Right across the financial services industry, there are examples of pricing which are designed to mislead. The cheap mortgage deal that comes with a huge “arrangement” fee. The savings account where most of the return is a temporary “bonus” rate. The cheap insurance deals which rely upon customers’ reluctance to switch every year.

Investment fund pricing has been shrouded in mystery for too long. The truth is that consumers are paying too much for the very thing that they think they’re buying (and historically too much for things they didn’t know they were buying).

This would never happen in the fund industry

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There has been some discussion recently that the HMRC is looking into the possibility of taxing rebates received on behalf of investors as “income”. Whilst it’s not for us to question the wisdom of the Revenue, it does introduce a strange scenario which we’re slightly confused about.

It reminded me of a time when I was in Edinburgh Airport and being told that something that was “tax-free” was better than an identical item which wasn’t tax-free but was actually cheaper. Don’t believe me? Read on.

In Edinburgh airport, there is a shop like there is in many other airports which sells goods ‘tax free’. It’s a brilliant selling point – why give the tax man more than you have to?