The FCA's market study concluded that the market is generally sufficiently competitive, although switching providers and switching between unit classes may still be difficult due to the time, complexity and costs involved. It is now consulting on a package of new rules designed to make it easier for consumers to switch platforms and remain in the same fund without having to sell their investments, as well as a potential ban or cap on exit fees.
Insurance and wealth management expert Tobin Ashby of Pinsent Masons, the law firm behind Out-Law.com, said that the report "overall reinforces the FCA's view from its interim report, that the market is working well and that platforms are competing well in the interests of consumers".
"This is good news for the platform industry, although there will of course always be room for improvement in any market and so the FCA's continued focus on competition has led to more detail on the issues it had previously highlighted," he said.
"The platform market has already been making considerable progress in some of the key areas the FCA has raised, such as transfers between platforms and converting units, so much of the likely outcome of the report and consultation should be building on work that is underway. The conversion of units has raised practical issues in recent years, so it is likely to be beneficial having a consistent approach industry-wide and it will be worth platforms engaging with the consultation to ensure the proposals can work in practice," he said.
The FCA began its investment platforms market study in July 2017. Its intention was to explore how investment platforms compete to win new customers and retain existing ones, and whether platforms enable retail investors to access products which provide value for money.
Although concluding that the market is working well for most of its customers, the FCA said that it had some concerns about the expense and time-consuming nature of moving their investments from one platform to another. It is now consulting on proposals designed to make it easier for them to do so without first having to liquidate their investments, as well as a new rule to ensure that customers who switch are given the option to convert their assets to a discounted unit class where this is available after switching.
The FCA is also seeking further views on exit fees, ahead of a possible future consultation on capping exit fees or banning them outright. The regulator's view is that a full ban is likely to be the most appropriate means of reducing consumer harm. It has also proposed that the ban should be extended to firms offering "comparable" services to platforms, such as those that "deal, arrange deals or manage investments for or on behalf of retail customers, where their services include the safeguarding and administration of investments".
"Given previous output from the FCA, it is perhaps not surprising that the final report proposes action on exit fees and the only question now will be whether these will be capped to allow for the legitimate costs of transfer or banned outright. For now, this question is focused on the distribution and custody of retail investment products rather than the products themselves, although there is a proposal in the report of further consideration of a wider scope in time," Ashby said.
Industry efforts to improve the switching process for platform customers, including through the 'STAR' scheme, were welcomed by the FCA, which is encouraging firms not already signed up to the scheme to consider taking part. The FCA has also decided not to propose any new rules on disclosure of costs and charges, or on encouraging 'orphan clients' to switch to a more suitable product, in response to industry action following its interim report.
Tobin Ashby said: "As part of the acknowledgement of what is working well in the platforms market, the FCA didn't feel the need to act on orphan clients at an industry level, but platforms will need to ensure the steps they take to treat these customers fairly are clear and consistent as there may be ensuing questions from the regulator".
The FCA's consultation on new rules for switching and exit fees closes on 14 June 2019. The FCA may then consult on final rules for exit fees. It intends to continue to review industry progress on switching, and on disclosure of costs and charges.