A closer look at platforms was hinted at by the regulator in the interim report on its asset management study. But few expected a full-blown market study, a probe designed to focus on competition issues.
Kevin Okell, director of financial services consultancy Altus, said he was surprised by the FCA review given the fundamental differences between the asset management and platform markets.
“I don’t see the same kind of problem with platforms as I do with fund managers –platforms barely break even while fund managers make handsome profits whatever the market conditions,” he said.
“I wonder whether their real concern is vertical integration and ‘guided architecture’ rather than genuine wrap platforms.”
The study will examine how direct and adviser platforms compete to win and retain new customers, and whether they offer retail investors products providing value for money.
CWC Research managing director Clive Waller said he believed the regulator “still did not understand platforms”.
“[The FCA] is pulling in different directions. They have a desire to micro-manage platforms, [which] is nuts because the platform market is so dynamic,” he added.
Mike Barrett, director at The Lang Cat, said there was “plenty for the platform study to consider”, but he and Mr Waller highlighted a potential tension between the stated objectives of encouraging both competition and cheaper fund deals.
“[Where price discounts do exist], they are more often than not delivered via a bespoke ‘superclean’ share class that is only held by the platform(s) who have agreed terms with the fund manager. This creates issues if you want to move to another provider, and is arguably anti-competitive,” Mr Barrett said.
Enabling switching between providers has been a particular focus for the FCA, particularly in areas such as retail banking. Mr Waller said the issue needed looking at with regard to platforms but raised similar queries to Mr Barrett.
“Re-registration is what has stopped mergers. There is no value if you can’t move the client, and platforms and asset managers won’t agree on a way forward. I wonder whether legislation is required. However, more special share classes and segregated mandates will make it harder,” he said.
The FCA said in its interim report on asset management there was little evidence of platforms using their scale to negotiate price discounts for clients.
Mr Barrett went further, adding: “Platforms securing these discounts typically charge above-average platform prices, therefore the benefit of the discount is diluted by the higher platform charge. You are often better off in pure cost terms buying the same fund in its non-discounted form on a cheaper platform.”
The regulator said last week its asset management study had highlighted “a number of potential competition issues” in the platform sector, including complex charging structures.
The FCA added: “The…study will allow us to understand the causes of any competition problems in this market and assess what we can do to improve competition and improve consumer outcomes.”
Christopher Woolard, director of strategy and competition at the watchdog, said he did not expect work on the study to begin until the “back end of this calendar year”. The regulator’s business plan suggests the probe will conclude in the 2018-19 financial year.
Regulator fires warning shot at advisers
The FCA’s inaugural ‘sector views’ publication, issued last week, had some critical words for advisers.
“Relatively few advisers are transparent about their pricing before they sell advice. This does not incentivise advisers to compete on price and may result in limited pressure on them to reduce their charges,” the regulator said in the document.
More concrete action is planned on the suitability of advice: the FCA said it would “continue to monitor” this area.
Its business plan indicated it would not complete its ongoing follow-up review on the subject until the 2018-19 financial year, although the outcome of a separate look at wealth management suitability is expected towards the end of 2017.
IN NUMBERS
£340bn
Assets on advised platforms
80%
Proportion of new retail investment business done via either direct or advised platform
