Competition is working well for most consumers using investment platforms, according to interim findings of the Financial Conduct Authority’s market study into investment platforms, published today.
However, the FCA’s interim findings 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.
Christopher Woolard, Executive Director of Strategy and Competition at the FCA said:
“This is a market that has seen significant growth in the past five years with more customers than ever deciding to use a platform to manage their money. We know that competition is working well for many but it is important that the problems we have identified are addressed so that consumers don’t lose out.
“We have outlined a package of measures today to address the issues we have found, but we also want to see the industry step up, making it easier for consumers to transfer from one platform to another.”
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. The FCA found 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 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 don’t 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 similar sounding labels (for example, ‘cautious’, ‘conservative’, ‘balanced’) can expose investors to significantly different underlying assets and volatility in returns.
- Customers 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, 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 is currently taking forward an initiative to improve the switching process and reduce transfer times.
Between 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.
Notes to editors
- MS17/1: Investment platforms market study[1]
- The FCA defines a platform service as a service which involves arranging, safeguarding, administering investments and distributing retail investment products which are offered to retail clients by more than one product provider. The service is neither solely paid for by adviser charges nor ancillary to the activity of managing investments for the retail client. See the FCA Handbook[2].
- On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
- The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
- Find out more information about the FCA[3].