FCA proposes actions to improve competition in the investment platform market

16 July 2018

Competition is working well for most consumers using investment platforms, according to interim findings of the FCA’s market study into investment platforms, but it also reveals concerns about how platforms compete for particular groups of consumers. Given the rapid growth in this market, the FCA is proposing measures to address these problems before they get bigger.

The FCA has found that competition is not working as well as it should do for some consumers. The FCA is concerned about consumers:

• Who may benefit from switching but find it difficult or costly to do. The FCA found that around 7% of all consumers tried to switch but failed to do so. The FCA found that barriers to switching are significant and could limit the pressure on platforms to provide continued value for money.
• Using direct-to-consumers (D2C) platforms who particularly want to choose on the basis of price. The FCA found that it is difficult for consumers to choose a D2C platform on the basis of price and that those who want to don’t always succeed in finding cheaper platforms. The FCA found fees were hard to understand and compare.
• Who use model portfolios. Similar risk labels are applied to very different portfolios and customers may have the wrong idea about the likely risk/returns they face. The FCA found the information that platforms provide about these model portfolios makes comparison difficult, and similar sounding labels (for example, ‘cautious’, ‘conservative’, ‘balanced’) can expose investors to significantly different underlying assets and volatility in returns.
• Customers with large cash balances who may not be aware they are missing out on investment returns or on the interest they forego by holding cash this way.
• Orphan clients, customers who were previously advised but no longer have any relationship with a financial adviser. Orphan clients have limited ability to access and alter their investments on an adviser platform so are effectively paying for functionality that they cannot use.

The FCA has proposed a package of remedies targeted at these five groups of consumers to address the concerns that it has identified. These include measures to help strengthen the extent to which platforms drive competition between asset managers, measures to make it easier for investors and advisers to switch platforms, tackling price discrimination between orphan and existing clients and measures to alert customers who are holding large cash balances.

The FCA is seeking feedback on its initial findings (feedback period closes on 21st September) and proposed remedies before publishing its final conclusions about the market in early 2019.

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Investment platforms market study

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