Concerns over competition throughout the value chain of the £500bn platform sector are at the heart of the FCA’s market study, the terms of reference of which were published today.
The FCA will examine the commercial relationships and incentives platforms have with other stakeholders in the market, the products they promote, the choices investors make and the value for money they receive. The regulator will compare outcomes of platform-users with outcomes for those using other products.
The market study will analyse the research and data used by platforms to decide which products to list and which to put into model portfolios and best buy list.
The FCA has highlighted the predominance of vertically-integrated platforms, with their own upstream asset manager. It notes six of the 10 largest direct platforms – Hargreaves Lansdown, Barclays Stockbrokers, Fidelity Personal Investing, Alliance Trust Savings, AJ Bell Youinvest and HSBC Invest Direct – and six of the ten largest adviser/intermediated platforms – Cofunds/Aegon, Fidelity Fundsnetwork, Old Mutual Wealth, Standard Life, AJ Bell Investcentre and Zurich – are vertically integrated.
The market study will also look at how platforms compete and the way financial advisers’ principal-agent relationship with their client affects competition.
The FCA will explore whether platforms help investors make good investment decisions and whether their investment solutions offer investors value for money.
For the purposes of this study the FCA defines ‘platforms’ broadly. The study will look at both investment platforms and firms that provide similar services by allowing investors or their advisers to access retail investment products through an online portal.
This 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.
FCA executive director of strategy and competition Christopher Woolard says: “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.
ABI head of retirement policy Rob Yuille says: “Platforms have revolutionised the way that advisers and consumers invest, minimising fuss and providing a more holistic view of performance for consumers. They are a growing part of the long term savings market, where many types of firms compete to offer a wide range of products to suit customers’ needs. The FCA’s study rightly reflects this breadth and diversity, and the many factors that can have an impact on customer outcomes.”
Hargreaves Lansdown head of policy Tom McPhail says: “The FCA has set a very broad scope for this study; the terms of what constitutes a platform can include online portals, life insurance companies, wealth managers and banks; in effect any organisation providing a retail investment service is likely to come under scrutiny.
“This study recognises the vital service platforms now provide to millions of people, helping them to save and invest for their future. The advice gap remains and platforms have an important role to play in delivering guidance and support to investors, many of whom need help if they are to invest with confidence.
“Platforms can also bring pressure to bear on asset management costs, negotiating discounts for investors, promoting good funds and highlighting poor performers. As with the asset management study, this paper is not simply about the price charged by retail investment service providers, it is about the value they deliver to investors.”