UK online platforms braced for change Online investment platforms are preparing themselves for sweeping new regulation that may ban the rebates they receive from fund managers, forcing them to introduce upfront client charges and potentially putting pressure on their profit margins. Use of online platforms has grown rapidly over the past decade as retail investors have become increasingly willing to invest in funds and shares without using a financial adviser. The annual volume of online trades in the UK increased 135 per cent between 2006 and last year, according to Compeer, a research group. However, the sector has attracted scrutiny from regulators because of the way in which most platforms generate revenue from clients" investments in unit trusts and other funds. Instead of charging a fee for broking the investment, the platforms typically receive a share of the annual charge that the investor pays to the fund manager. The Financial Services Authority is now consulting on proposals to ban this convention, citing a need for greater transparency across the financial industry, and concerns about potential conflicts of interest. The regulator had expected to publish its consultation paper by the end of March, but is still working on the wording of the proposals in the document. Platform operators want the FSA to clarify the nature of the new rules as soon as possible, to enable them to begin changing their business models. Some platform operators argue that they should not be subject to the same restrictions as financial advisers, who will be banned from receiving "trail" commission from fund managers after the end of this year, because they do not advise their clients on where to put their money. Yet a person close to the FSA said that platforms could still influence investors" decisions, for example, by including certain funds on the lists of "favourite" unit trusts offered by several platforms. The new regulations for platforms would not come into force until the middle of next year at the earliest, the person added. James Hamilton, an analyst at Numis, said that if platforms were forced to charge clients directly, the resulting price competition would probably mean they would generate a lower average rate of income on investments that they intermediated. Nonetheless, Nigel Bence, chief operating of Hargreaves Lansdown, the FTSE 100 platform operator, said he expected self-execution platforms to enjoy an indirect boost from the new rules for IFAs, as some advisers left the industry and their clients sought other options. Many IFA clients will also decide to forsake financial advice once they are confronted with upfront charges for it, and will opt for the lower charges levied on self-executed investment, platform operators argue. "There is still room for advice ... but as some of these retail investments come into the mainstream, people understand they can do it themselves without the need for advice," said Alastair Thaw, a director at Barclays Stockbrokers. Chris Hannant, policy director at the Association of Independent Financial Advisers, said that while he expected "a small number of advisers to leave the market" as a result of the FSA's rule changes, consumers would continue to value services, such as advice on taxation and inheritance planning, that were not offered by execution-only platforms.