On 16 July 2018, the FCA published its investment platforms market study interim report (MS17/1.2) (Interim Report), outlining the FCA’s view on how competition in the investment platform market works and how it would like the market to develop. The market study follows an earlier report on the asset management market study (MS15/2.3), published last year, which highlighted some potential competition issues in this sector.
The Interim Report identifies investment platforms as a growing and significant distribution channel, with the platform service provider market doubling since 2013 from £250bn to £500bn assets under administration.
The Interim Report found that the market appears to be “working well in many respects” and that the level of customer satisfaction is high. On average, the FCA found that customers who pay more receive better functionality and the FCA found little evidence of consumers paying more for “no good reason”. Lack of excess profitability in the sector has led the FCA to conclude that there are no widespread competition concerns in the investment platforms sector.
The FCA did, however, raise a number of areas where it felt there was room for market improvement, including:
- Consumers who would benefit from switching between platforms can find it difficult to do so;
- Price sensitive consumers having difficulties shopping around and choose a lower-cost platform;
- The risks and expected returns of model portfolios with similar risk labels were unclear;
- Consumers with large cash balances on investment platforms not knowing they are missing out on investment returns, the interest they lose or the charges they pay by holding cash in this way; and
- “Orphan clients”, namely those clients who were previously advised but no longer have any relationship with a financial adviser, being unaware that they face higher charges and lower service.
In the Interim Report, the FCA proposed measures to remedy some of these concerns. Whilst it recognised that full implementation of the rules introduced under MiFID II could address some of the problems identified, the FCA noted that additional rules may be required to supplement the current framework. The measures proposed included:
- Providing help for consumers to shop around in order to choose on the basis of price. Although not proposing additional costs and disclosure rules at this stage, the FCA stated they wanted to see more innovation in the way costs and charges were presented. The FCA stated that other options being considered included giving intermediaries more data on platform charges and performance.
- Using platform providers to drive competition between asset managers. The FCA noted that it was seeking views on the impact of arrangements between asset managers and platform providers which stipulate a “best price” or “no lower price elsewhere” condition. The FCA also stated that their behavioural research suggested attention on asset manager charges can be heightened by presenting charges in a clear, understandable and prominent way.
- Assisting consumers with large cash balances on understanding the cost and implications of expected returns.
- Facilitating platform switching by investors and advisors, including reinforcing industry initiatives in the area.
The FCA invited comments on the findings and proposed remedies published in the Interim Report. Comments on questions set out in the Interim Report can be provided until 21 September 2018, and the final report is expected to be published in Q1 of 2019.