Investment Platforms Market Study – MS17/1.2

Another day, another FCA paper to review. This time we are talking about Investment Platforms. While the markets are working well for most, for some it’s not. This Market Study follows on from the Investment Platforms market study in 2017 which highlighted a number of issues. The FCA have proposed measures to overcome these problems.

What is the FCA concerned about?

The FCA is concerned about 5 main aspects of the market:

  1. Switching – often switching between platforms can be quite difficult and therefore clients cannot benefit from switching.
  2. Shop around – this can also be difficult, especially to consumers who are price sensitive as they can find it difficult to choose a lower-cost platform.
  3. Model portfolios – those with similar risk labels are often found to be unclear which could lead to the consumer being exposed to higher risk and volatility.
  4. Large cash balances – those consumers who hold large cash balances may be missing out.
  5. ‘Orphan clients– sometimes these are faced with higher charges and lower services.

What has the FCA proposed to address these issues?

Just for the fun of it, today’s theme of sub headers is songs. Well known ones at that…

Switch – Will Smith

The Transfer and Re-registration Industry Group is currently taking forward an initiative to improve the switching process and reduce transfer times. At a minimum, this should provide:

  • End-to-end standards for transfer and re-registration (also known as in-specie) times through the introduction of a maximum timescale for each step in the switching process
  • Clear communication to customers – provided by the receiving provider at the start of the switching process detailing the transfer process, timelines and giving them a point of contact if they have any questions or wish to complain.

Shop Around – The Miracles

The FCA say that the aggregated total charge disclosure imposed by MiFID II should help improve the situation. They are conducting a supervisory review to assess whether providers and distributors are providing the information required by MiFID II and PRIIPs. The FCA are not proposing additional costs and charges disclosure rules at this stage. Possible alternative options include requiring platforms to give intermediaries more data on platform charges and performance. They also include open data solutions where customers can export their usage history to third parties.

Taking Chances – Celine Dion

The FCA does recognise that the issues they have identified with in-house model portfolios might also apply to portfolios provide by wealth and asset managers and more to particular types of platforms. They have said they will do further work between their interim and final reports to assess the scope of these issues.

Depending on what the FCA find, they could then explore measures to help consumers make better choices between model portfolios. These could include, for example, the disclosure requirements that currently apply to funds to model portfolios or requiring firms to use standard terminology to describe their strategy and asset allocation.

Money, Money, Money – ABBA

The FCA will assess whether existing rules on disclosure go far enough or whether further rules or guidance is required to ensure the policy objective – to ensure consumers are making informed decisions – is achieved.

It’s a Hard-Knock life – Annie Soundtrack

To improve outcomes for orphan clients the FCA are considering the following measures:

  • tackling price discrimination between orphan and existing clients
  • requiring platforms to have a process in place to get these customers to switch to a more appropriate proposition
  • requiring adviser platforms to check, if there is no activity after a year, that their customers are receiving an advice service, and inform the FCA of orphan clients who are still paying an adviser for advice they no longer receive.

What to do now?

The FCA is welcoming feedback on:

  • their interim findings on how competition works between investment platforms; and
  • their potential remedies and, specifically, the questions set out.

If you have any comments then you can send them to investmentplatformsmarketstudy@fca.org.uk by the 21st of September 2018. The FCA aim to publish their final report in the first quarter of 2019 and we’ll be sure to do our best to once again translate it into a riveting read!

Investment Platforms Market Study – MS17/1.2
APCC Member

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