The interim findings of the FCA’s market study into investment platforms, published today found some consumers may benefit from switching but find it difficult or costly to do. Around 7 per cent of all consumers tried to switch but failed to do so.
Consumers found it difficult to choose a D2C platform on the basis of price and those who want to don’t always succeed in finding cheaper platforms. The FCA found fees were hard to understand and compare.
The regulator also found issues with model portfolios, with similar risk labels applied to very different portfolios. The FCA found the information that platforms provide about model portfolios makes comparison difficult, with portfolios with similar sounding labels, such as ‘cautious’, ‘conservative’ and ‘balanced’ exposing investors to significantly different underlying assets and volatility in returns.
The FCA reiterated its concerns that customers with large cash balances may not be aware they are missing out on investment returns or on the interest they forego by holding cash this way.
The regulator also flagged its concern over orphan clients, who it found have limited ability to access and alter their investments on an adviser platform so are effectively paying for functionality that they cannot use.
The investment platforms market has almost doubled in size since 2013, since when an extra 2.2 million customer accounts were opened. As consumers become increasingly dependent on investment platforms to manage their investments it is vital that competition between platforms is working well, says the regulator.
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 and proposed remedies before publishing its final conclusions about the market in early 2019.
FCA executive director of strategy and competition Christopher Woolard says: “This is a market that has seen significant growth in the past five years with more customers than ever deciding to use a platform to manage their money. We know that competition is working well for many but it is important that the problems we have identified are addressed so that consumers don’t lose out.
“We have outlined a package of measures today to address the issues we have found, but we also want to see the industry step up, making it easier for consumers to transfer from one platform to another.”