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FCA: there is 'inherent conflict' within adviser platform model

The Financial Conduct Authority has expressed concern over an 'inherent conflict' for adviser platforms.

FCA: there is 'inherent conflict' within adviser platform model

The Financial Conduct Authority (FCA) has expressed concern over an 'inherent conflict' for adviser platforms.

In its Annual Competition Report for the year ending March 2017, the regulator highlighted that assets under administration were growing more quickly in adviser platforms than in direct-to-consumer (D2C) platforms.

The FCA will launch a market study into investment platforms this year, and has already flagged up potential weaknesses in platform competition.

These include complex charging structures, whether platforms’ investment tools support effective choice, and whether platforms have the incentives and ability to put competitive pressure on asset management charges. 

Today's report goes further, focusing on what the FCA seems to view as a fundamental flaw in the way platforms are selected for clients by advisers.

'Our thematic review into suitability of advice, published in February 2016, found that although firms mainly sought to achieve positive outcomes for their clients, there were issues relating to platform research and due diligence,' the competition report said.

'There is an inherent conflict for adviser platforms; they are selected by and usually used by the adviser, but paid for by the retail customer.'

Previous warning

This statement echoes comments made by consultant and former-FCA technical specialist Rory Percival.

Percival told New Model Adviser® in November 2016 there was not enough competitive pressure on platform costs from advisers, who were buying on behalf of clients.

He said: ‘The trouble is that consumers really are not price sensitive at all when it comes to the cost of advice.

‘There are two things that flow out of that. One is lack of competition among advice firms, and the other one is very little competitive pressures on product and platform cost. The clients are paying it, the products and platforms are being selected by advisers, the adviser isn’t paying for that out of their own pocket so there is less price pressure on the platform and product provider.

‘Effectively the advisers are the buyers in this scenario. There is a real obligation for advisers to really feel conscious of the fact they are the buying on behalf of their clients and that they need really need to be exerting these price pressures in order for it to work effectively.’

The investment platform market study will explore how D2C and intermediated investment platforms compete to win new and retain existing customers, according to the FCA.

It will also scrutinise the products and services on offer, and the extent to which consumers can achieve and assess value for money when dealing with platforms.

A further consideration will be 'whether platforms enable retail investors to access investment products that are well suited to their needs, and whether conflicts are effectively managed by vertically integrated firms'.

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