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FCA study will force advisers to rethink platform choices

FCA study will force advisers to rethink platform choices

Financial Conduct Authority (FCA) plans to study the platform market will force advisers to rethink their relationship with providers. 

The regulator announced plans to launch a market study of advised and direct to consumer platforms in its annual business plan published earlier this week. 

It said last year's review of the asset management industry identified issues with the way platforms charge investors. 

'The interim report for the asset management market study identified a number of potential competition issues in the investment platforms market,' the FCA said. 

The regulator's study proposes to find out ‘the causes of any competition problems in this market and assess what we can do to improve competition between platforms and improve consumer outcomes.’

Advisers will need to pay attention to the findings of this study as it will change how they deal with platforms, according to consultants. 

Innes Miller, director of Scydonia Wealth Markets Consulting, said the study is likely to force advisers to push for lower charges.

The FCA highlighted 'complex charging structures' as a problem in its business plan, and questioned whether platforms were doing enough to push down asset management charges. 

Miller said this pressure on charges is likely to trickle down to advisers when they deal with platforms. 

‘It is down to the advisers to ramp up the pricing pressure on platforms. You are not going to get that from the end customer because they are effectively trusting the adviser, that is what the adviser is there for,' he said.

‘But one of the big issues the FCA is trying to highlight is that advisers are just not doing that, they are working with their favourites.'

This issue of advisers using their 'favourites' on platforms was raised by the FCA in an update on due diligence in February 2016. The regulator described an ‘if it isn’t broke don’t fix it’ attitude among some advisers when it came to platforms. 

In particular the regulator said that some firms prioritised the service they received from a platform rather than the service received by the client.

Bella Caridade‐Ferreira (pictured above), who has recently launched comparison website Compare the Platform founder and is chief executive of Fundscape, said the market study of platforms would look to address this, and could change the way advisers charge for a platform. 

‘All those bells and whistles, that service and functionality, is for the adviser and for the adviser to run his or her business.

‘What the end customer needs is custody and that is all they should be paying for.

‘The adviser should be paying for all that functionality,’ she said.

Value for money gets a hefty 13 mentions in the business plan and it seems this is certainly a priority theme for the FCA. As well as the platform review it has signalled it will look at advice fees. This is alongside ongoing work set out in the asset management interim report, where the regulator proposed the introduction of an 'all-in' fee for investing.

Without transparency in charging though there is no telling whether a service is value or not.

Miller said that although platform charges improved in their simplicity, they are still overly complex.

However Clive Waller (pictured above), managing director of CWC Research, said the regulator needed to look at other charging structures before attacking platforms.

He said discretionary fund managers (DFMs) and vertically integrated advice models posed particularly important questions for the regulator.

‘As an industry, we can identify platform charges easily. We cannot understand wealth manager charges. These things are singularly untransparent, and bloody high,’ said Waller.

Caridade‐Ferreira said the FCA also needed to be aware that platform charges could not be pushed so low as to put platforms out of business.

‘There does need to be more competition but there is only so low that you can go at the end of the day. Platforms cost money to operate,’ she said.

Waller also warned the FCA against 'regulating yesterday' when it looks at the platform market. 

Last year saw two major acquisitions in the platform market as Aegon bought Cofunds and Standard Life bought AXA Elevate. Combined with changes to technology as robo-advice becomes more popular, Waller said this the regulator was in danger of falling one step behind.

‘As more and more propositions go restricted [as part of vertically integrated models] platforms will be very different. Your platform will only do what you want it to do then. It does not have to do everything which will mean it will be a great deal cheaper,' he said.

‘In terms of IFA platforms there will probably only be a couple left in a few years’ time, the market is going to be tiny.

‘What worries me is the move to robo, which is happening whether the regulator likes it or not. In that case a platform will be a totally different kit.’

Competition and value for money in the platform market are undoubtedly a key part of cleaning up the advice market more broadly. But who is it being made transparent to and where will competition pressure come from?

In an ideal world the end consumer would understand what a platform does and be able to compare the value in what he or she is paying for. However in reality, by the time this has been achieved platforms could be unrecognisable and functioning as part of a market wholly transformed by technology innovations.

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