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FCA highlights three key areas for Platform Market Study

18 July 2017

The Financial Conduct Authority (FCA) has published the Terms of Reference for its Investment Platforms Market Study, which sets out the scope and topics that will be covered.

The Regulator said the increased use of platforms by consumers and financial advisers to access retail investment products and to manage investments had seen a rise in Assets Under Administration (AUA) over the last eight years for both adviser and direct platforms of £108 billion in 2008 to £592 billion in 2016.

Three key areas were highlighted by the Regulator as requiring investigation as part of its study:

  1. Whether platforms help investors make good investment decisions and whether their investment solutions offer investors value for money.
  2. How platforms compete in practice and whether they use the bargaining power they have at their disposal to pool retail investors’ money and so achieve better investment returns by getting investors a good deal.
  3. Whether the relationships between platforms, advisers, asset managers and fund ratings providers work in the interests of investors.

Under scrutiny in the study will be:
• platforms and other firms that offer access to retail investment products through an online portal;
• retail investors who access retail investment products through an online portal;
• intermediaries, including financial advisers and wealth managers who use intermediated platforms to access different retail investment providers on behalf of their clients;
• product and wrapper providers who use platforms to distribute their products;
• technology providers to whom platforms outsource services; and
• fund ratings and data providers whose information platforms use and distribute.

Notably, the FCA said the Market Study follows on from the Asset Management Market final report published in June 2017, “which highlighted a number of potential competition issues in the platforms sector”.

Commenting on the start of the study, Christopher Woolard, executive director of Strategy and Competition at the FCA, said: “With the increasing use of platforms, and the issues raised by our previous work, we want to assess whether competition between platforms is working in the interest of consumers. Platforms have the potential to generate significant benefits for consumers and we want to ensure consumers are receiving these benefits in practice.”

The deadline for feedback on the topics is 8 September 2017 and the FCA said it aims to publish an interim report by summer 2018 which will set out preliminary conclusions and “any potential remedies to address concerns”.

Responding to the launch of the review, Steven Cameron, pensions director at Aegon, said: “We’re pleased the FCA recognises the many benefits the growing platform market can provide. Platforms are rapidly replacing traditional life companies at the heart of financial services, bringing together customers and advisers with propositions and investment solutions. It’s appropriate the FCA is also considering similar business models which may fall outside the strict regulatory definition of a platform but offer similar services and access to investment products.
“When considering both competition and value for money, it’s right to look at the role platforms play in the value chain. The Asset Management Market Study sets out a range of remedies to tackle competitiveness and value for money in the fund manager part of the chain and once these begin to be acted on, we’d expect knock-on impacts through the chain for the benefit of customers. These changes are likely to have direct bearing on the platform market and it’s important the platform study keeps this in mind.
“The Market Study needs to reflect the fundamental differences between platform business models and the potential conflict between wide fund choice and negotiated discounts. Those which facilitate open access to the widest range of funds will find it more difficult to negotiate discounts with fund managers than those who limit investment choice or channel customers into preferred funds.
“In today’s financial services world, to be sustainable, business models need to achieve scale and be focussed on the interests of the end consumer, whether or not they engage through intermediaries and advisers. Within Aegon’s platform strategy is a clear commitment to ensure intermediaries have access to the best tools and support to serve their customers.”

Billy Mackay, marketing director at AJ Bell, also welcomed “the regulator’s decision to take a detailed look at the platform sector”.

He added: “One key focus for the FCA will be ensuring platforms are positioned to squeeze the best possible deals out of fund managers on behalf of their users. As part of this, the regulator should re-examine the ban on the payment of cash rebates from fund managers to platforms. Provided cash rebates are paid 100% for the benefit of customers, unwinding this ban would enable platforms to use their scale to negotiate discounts for their customers.

“This would help re-instate a more competitive dynamic between platforms and the fund groups and would clearly result in better outcomes for consumers by helping bring fund costs down.”

 

 

 

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