The Financial Conduct Authority (FCA) has commenced its deep dive into the platform industry. It is surveying adviser networks and platforms and has held a ‘beauty parade’ of market research companies which will speak directly with platforms’ customers, both advised and direct.
Wearing the ‘who, me?’ faux innocence of a penalised Premier League defender, the platform fraternity were somewhat mystified by the announcement of the study.
After all, the ‘they’re just bits of kit’ argument goes as follows: platforms are merely bits of technology, on a plane beyond the commercial rough-and-tumble of financial services competition. No sales and marketing function, no advertising, no adviser support; just custody and trading.
The regulator appears unpersuaded by this argument. The investigative approach being taken by the FCA suggests it believes there may be iniquities to uncover. Direct-to-consumer platforms do not escape attention. But it is clear from the FCA’s line of questioning it recognises that direct clients select platforms while advised clients may have little say in the matter. This has coloured the focus of the FCA’s inquiries, particularly with regards to fees and charges, versus the respective value for money delivered to advisers and their clients.
The importance of fee facilitation to the adviser, and advisers’ differential fees for off-platform work versus on-platform, are pretty obvious questions to ask and unsurprisingly feature prominently. Cunningly, the FCA then asks whether the adviser gains any business efficiencies or cost savings by using a platform. If the adviser answers ‘no’, then why are they using it? If yes, then how are those efficiencies being passed on to clients (since they are paying for it)?
Damned if you do, damned if you don’t. Unless you passed those efficiencies on, of course.
Advisers are asked how value for money is delivered to clients. Did you ask the platform for discounts on fees? If you did, what happened and how were those discounts passed on to clients. If you did not ask - why not?
Meanwhile, platforms themselves are questioned about treating customers fairly, although they may not have realised that is at issue.
Does the platform charge advisers for tools and so on?
Are there any restrictions that are placed on consumers accessing the platform, or any of its features? This is particularly interesting. If direct, execution-only customers are excluded from the platform – why? If the service is aimed at advisers, why is the client paying for it? If there are constraints on customers’ access to tools, fund research, switching and so on, how does that impact orphaned clients? Again, if elements of the service are restricted to adviser use, why is the client paying for it? How many clients with a single fund (for example, a multi-asset fund_are on a platform, whereby the benefits of custody, valuation and trading are specious?
Perhaps the most intriguing data will relate to the customers’ own responses. Do they actually know what a platform is, what it does for them and how much they are paying for it (in pounds and pence)?
The survey questions seem specifically designed to expose that inconvenient truth.
When the study was announced, I felt this might have a greater effect on the retail investment and distribution landscape than the asset management market study. The detail on the FCA’s inquiry has only strengthened that belief.