The FCA released its Mission Statement and Business Plan for 2017/18 on 18 April 2017, revealing that the FCA will conduct a market study to explore how ‘direct to consumer’ and intermediated investment platforms compete to win new clients and retain existing customers. Improving competition in the platform space was placed as one of the FCA’s priorities in the retail investment space.
The FCA says that, on the back of its market study into the wider asset management space, competition issues have been raised over platform performance, including complex charging structures, whether platforms enable effective choice with their investment tools, and if they are able to compete with lower asset management charges.
The market study will explore whether platforms enable retail investors to access investment products that offer value for money, and the study will consider both the direct to consumer and advised platform market. The FCA warns that “some self-directed investors are at risk of receiving products inappropriate for their risk appetite and capacity or receiving poor value for money”. Further, some investment managers may be paying too much for services on behalf of investors due to a lack of transparency of information regarding some fees and charges together with a failure to consistently monitor, assess and deliver on ‘best execution’. The FCA also raised concerns that fund groups are signing up to bundled services supplied by custody banks, resulting in fees being paid for services not necessarily needed. In addition, custody banks have few incentives to invest and replace legacy IT systems due to the low margin nature of the custody business, which could be resulting in the reduced ability of the banks to meet current service standards.
In November of 2016, it was revealed that the FCA had also held talks with a number of platform bosses regarding the potential risks of replatforming projects. The FCA acknowledged that replatforming projects posed a risk to some customers in circumstances where replatforming results in bulk transfers of customers to new propositions, which carries the risk that some customers may lose out as a result.
The investment platform market study will allow the FCA to understand the causes of any competition problems in this market and assess what the FCA can do to improve competition between platforms and improve consumer outcomes. When scoping the study, the FCA will take into account relevant feedback received from the Asset Management Market Study, details of which can be found here. Please note that as part of the market study information gathering process, the FCA may contact you for information. Cleveland & Co will be following up on this article once the FCA’s market study is published. If this is of interest to you, please ensure you subscribe to our updates and newsletters.
To view the FCA’s Mission Statement 2017/18, please click here.
To view the FCA’s Business Plan 2017/18, please click here.
If you need any advice on the FCA’s platform review, Cleveland & Co, your external in-house counsel, are here to help