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FCA Investment Platform Review

July 19, 2018

What has happened?

Competition is working well for most consumers using investment platforms, according to the interim findings of the FCA’s market study (MS 17/1) into investment platforms, published on 16th July 2018. This study is available here.

However, the FCA’s interim findings also reveal concerns about how platforms compete for particular groups of consumers. Given the rapid growth in this market, the FCA is proposing measures to address these problems before they get bigger.

With £500bn of assets under management, the investment platforms market has almost doubled in size since 2013. During the same period, an extra 2.2 million customer accounts were opened. As consumers become increasingly dependent on investment platforms to manage their investments it is vital that competition between platforms is working well. The FCA has found that competition is not working as well as it should do for some consumers.

The FCA is concerned about consumers:

  • Who may benefit from switching but find it difficult or costly to do. The FCA found that around 7% of all consumers tried to switch, but failed to do so and that barriers to switching are significant and could limit the pressure on platforms to provide continued value for money
  • Using direct-to-consumers (D2C) platforms who they particularly want to choose on the basis of price. The FCA found that it is difficult for consumers to choose a D2C platform on the basis of price and that those who want to do not always succeed in finding cheaper platforms. The FCA found fees were hard to understand and compare
  • Who use model portfolios. Similar risk labels are applied to very different portfolios and customers may have the wrong idea about the likely risk/returns they face. The FCA found the information that platforms provide about these model portfolios makes comparison difficult, and that similar sounding labels (for example, ‘cautious’, ‘conservative’, ‘balanced’) can expose investors to significantly different underlying assets and volatility in returns
  • With large cash balances who may not be aware they are missing out on investment returns or on the interest they forego by holding cash this way
  • Orphan clients – customers who were previously advised but no longer have any relationship with a financial adviser. Orphan clients have limited ability to access and alter their investments on an adviser platform so are effectively paying for functionality that they cannot use

The FCA has proposed a package of remedies targeted at these five groups of consumers to address the concerns that it has identified. These include measures to help strengthen the extent to which platforms drive competition between asset managers, measures to make it easier for investors and advisers to switch platforms (including supporting the existing industry initiative in relation to switching and considering a potential ban on exit fees). tackling price discrimination between orphan and existing clients and measures to alert customers who are holding large cash balances.

The FCA recognises that industry is currently taking steps, including implementation of MiFID II, to help consumers shop around on the basis of price. The FCA also acknowledges that the Transfers and Re-registration Industry Group here and is currently taking forward an initiative to improve the switching process and reduce transfer times.

Between its interim and final report, the FCA will assess industry progress in these areas before deciding whether it should introduce additional remedies.
The FCA is seeking feedback on its initial findings and proposed remedies before publishing its final conclusions about the market in early 2019.
The investment activities typically within the scope of the review are;

How can Thistle help you?

Thistle will continue to keep this area under review and will issue further updates where necessary. Please contact Thistle if you need assistance in relation to any of these issues.