The Financial Conduct Authority will launch a market study into the platform industry next month.
It follows the FCA’s findings that there are barriers to switching platforms, that it is not clear investors benefit from the economies of scale platforms provide and that it can be difficult to understand the full cost of an investment made through a platform.
Responses to the FCA’s consultation were generally supportive of the regulator carrying out more work in this area.
The FCA stated: “The responses confirmed our view that further work is warranted to ensure that investment platforms demonstrate and promote effective competition in the interests of consumers.
“To consider whether the issues apply across the market, we will be undertaking the investment platforms market study.”
The study will consider how direct-to-consumer and intermediated investment platforms compete to win new and retain existing customers and whether platforms allow retail investors to access investment products that offer value for money.
As part of the study the FCA will also investigate the extent to which platforms are dependent on third party fund rating firms and how platforms ensure any conflicts of interest do not affect the quality of information they make available to investors and financial advisers.
The FCA said: “We received several comments about the effectiveness of platforms in helping investors make informed choices.
“Several respondents expressed concerns regarding the complexity of costs and charges and therefore the potential for a lack of investor understanding of these.
“Respondents suggested that platforms do attempt to use their buyer power when negotiating with fund managers and are successful to some extent successful. “However respondents also raised concerns about whether the benefits of discounts achieved by platforms were partially offset by the high platform fees incurred by investors.
“Respondents raised concerns on adviser platforms in particular as they are used by advisers but paid for by investors.
“However, due to the way the end investors pay, the constituent costs may not be clear.”
The consultation exposed concerns across the industry about platforms, particularly distribution costs and intermediary fees which are often in excess of fund manager fees, conflicts of interest in the adviser business model and the high profit margins of vertically integrated companies.
A number of respondents also raised issues with model portfolios, including what they perceived as poor value for money because of additional layers of fees, tax implications which are not made clear to investors and poor transparency.
David Morrey, partner and head of investment management at Grant Thornton, said while the work on platforms remains to be performed, the focus is inevitably going to be on whether platforms provide cost efficiencies from which investors benefit.
Mr Morley said: "The market study leaves that as an open question, but implies that the answer is no.”
damian.fantato@ft.com
