FCA welcomes investment platform growth but calls for greater competition in interim market study report

In its interim report (110 page / 1.25MB PDF) on its investment platform market study, the FCA welcomed the significant growth in the investment platform market since 2013. It said in the last five years the market has doubled in size, with £500 billion of assets under management and 2.2 million customer accounts opened in that period; and that the market appeared to be working well in many respects.

The report focused on competition for certain groups of consumers, for example where there might be barriers to switching platforms with the report citing around 7% of all consumers trying but failing to switch.

Investment management expert Tobin Ashby of Pinsent Masons, the law firm behind Out-Law.com, said the study "covered a wide range of matters".

"After a long wait for the FCA’s views on the workings of the investment platform market, there is good news in that the FCA has found that the market is mainly working well and that customer satisfaction is high. There are quite a lot of initiatives and potential measures in the detail of this paper, however, that firms should consider carefully ahead of the consultation deadline in September," Ashby said.

The FCA said consumers found shopping around for a direct-to-consumer platform difficult on the basis of price and that fees were hard to understand and compare. 

The FCA also said it was worried about consumers holding large cash balances, consumers' perception of risk labels on model portfolios and costs for ‘orphan clients’ who no longer had a relationship with a financial adviser. It estimated there were around 400,000 orphan clients with just over £10bn of assets on platforms, paying extra fees of over £1.2 million a year.

"Pricing for orphan customers has become an increasing headache for platforms, who are trying to reconcile restrictions on those customers’ access to functionality with the additional work and cost needed for the platform to carry out tasks previously performed by the adviser," Ashby said. 

The remedies suggested by the FCA in the interim report range from proposals to encourage better information provision by platforms and other intermediaries, the introduction of end-to-end standards for transferring between platforms, and a ban on exit fees when customers are switching.

"The issues raised around switching platforms in particular have been the subject of considerable focus in the industry in recent years and so, with the FCA looking for further progress before publishing their final report in early 2019, the industry may feel it is already moving in the right direction towards addressing FCA concerns," Ashby said.

The FCA have suggested that platforms should have a process in place to encourage orphan clients to switch to a more appropriate proposition and said it was considering requiring adviser platforms to check if customers were still receiving an advice service.

The report said the implementation of the EU’s second Markets in Financial Instruments Directive II (MiFID) could help competition between platforms, particularly due the introduction of aggregated total charge disclosure. The FCA said it would like more innovation in the way investment platforms presented their MiFID II costs and charges data, for example by providing customers with interactive tools to calculate the charges. 

Ashby said that it was possible that the MiFID II disclosure could be sufficient to address some of the FCA’s concerns, but that the FCA was reserving its position for the time being.

The FCA said it would monitor industry progress in the areas where it has proposed remedies between now and the publication of its final report in the first quarter of 2019. The investment platforms study was first announced in April last year.