The announcement of an FCA market study into the platform industry has taken some analysts by surprise and left them debating whether the probe has conflicting aims.
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.
