PLATFORM REFLECTIONS: PROPOSALS FOR PLATFORM PROGRESS
Alistair Wilson reflects on the Financial Conduct Authority’s interim report on the investment platform market
After many months of interviews and research by the FCA, it has published its interim findings on investment platforms. While we have a few more months to wait for the final words (Q1 2019) there are a number of findings worth highlighting relating to adviser-led platforms.
A GOOD BLUEPRINT
The regulator identified that there is competition within this sector and no systemic issues in how it operates. This is important as while there are some areas of concern, the blueprint of the investment platform market is broadly in good shape and delivering for consumers, whether advised or self-served through D2C platforms.
Given previous comments and observations from the FCA (in particular its paper on Accessing Suitability 16/1 that looked at platform due diligence), I was somewhat surprised that status quo bias and retro fitting don’t feature, in part at least, as the reasons for the lack of switching between platforms. The FCA stated it costs on average £700 and six hours of adviser or administration time per client to move them.
The work being carried out by TRIG (the Transfers and Re-registration Industry Group) will ultimately help to reduce transfer or re-reg timescales and thus time out of the market. This doesn’t reduce the need for the adviser to check that a client is better off on another platform that offers a more suitable solution.
There is a challenge for advisers from the regulator: if advisers charge their clients when moving platforms, ‘it is not clear to us [the FCA] why meeting suitability requirements to switch platforms should outweigh the benefits of switching platforms’.
Much is made about exit costs, in particular with D2C platforms, and the fact that the FCA may be moved to ban them to aid platform switching. However, such costs are only part of the patchwork quilt that is platform pricing. It is said that it is difficult for consumers to understand the costs they will pay, making price comparisons difficult. How can a client read six pages of costs, identify those relating to them and work out the cost to them? I don't believe they can and I encourage the FCA to be bolder and look to simplify the extra charges that exist, especially around withdrawals and transfers.
It is crucial that orphaned clients are protected and the FCA rightly identifies some challenges for the industry about how they are serviced. No issues with me, but within the report there is an interesting suggestion.
Where an account has been inactive for a period of 12 months (not necessarily orphaned by my definition) and platforms are continuing to pay an adviser charge, the platform is to notify the FCA. This can’t be the conclusion, can it – no activity on the platform means no service? Platforms can neither make that leap nor assumption.
Areas highlighted here are the likes of bulk switching, model portfolio management and bulk rebalancing, referred to as ‘non-monetary inducements’. There are clear client benefits here despite them being driven by advisers. Hopefully the various representations from across the financial services sector will help to clarify this for the FCA.
This is an area that will challenge platforms. The regulator makes a couple of pertinent comments on additional costs being incurred by this subset of clients and their inability to manage their own affairs, especially when held on some adviser platforms.
The FCA mentions it may require platforms to have a process in place to get these customers to switch to a more appropriate proposition. This assumes the customer can source one (already an issue the FCA highlights in its report).
Responses to the FCA are due by 21 September. There is a lot for platforms to consider if we are to continue to grow this segment of the savings market while maintaining value for money for the client.
Alistair Wilson is head of retail platform strategy at Zurich