The FCA’s final report from its asset management market study, issued at the end of June, was no less eye-watering a read than the interim report in November 2016. Underperforming funds, poor price competition, rip off products and closet tracker funds. You name a consumer-unfriendly outcome; it was probably in there.
While there may have been some relief in the wood-panelled boardrooms of the City that a rumoured referral of the entire asset management industry to the Competitions and Markets Authority was not forthcoming, the FCA is clearly now on a value for money crusade.
Investment platforms featured in the report in two different, but equally interesting ways (if you like that sort of thing, as I assume you do, reading a technology column in Money Management).
First up was their role in helping consumers research and make investment choices.
One standout finding from the consumer research – published with the interim report – was that 51 per cent (in the qualitative research) and 49 per cent (in the quantitative research, see Chart 1) of consumers didn’t think they paid charges for asset management or were not sure.
This time around, for the final report, the FCA used six days of actual clickstream data from a platform – in its role as a distribution aggregator for funds – to get a real-world handle on how consumers tend to engage with charging information when researching and choosing funds.
It found that:
• Fewer than 9 per cent of visitors when looking at funds looked at the charges, and under 3 per cent at the information documents provided (including the Kiid).
• Customers sorted fund lists by charge on only 0.1 per cent of visits.
• Even among customers who went on to buy funds during their visit, fewer than one in five (17 per cent) engaged with the charges information.
• Where passive funds were bought that figure rose to even the teeniest fraction over one in five (21 per cent) suggesting passive fund buyers may be a more price sensitive bunch overall.
All of this begs the question, could platforms do more to help customers (or their advisers) compare charges and understand their impact, especially over the longer term? The answer to that is –undoubtedly – yes.
There are some simple and impactful visual ways to get the message across that could be built into platform journeys, taking platform charges into account in the process.
We came across www.wealthgame.ca through our involvement in the Transparency Taskforce – a campaigning community dedicated to driving up the levels of transparency in financial services.
It’s a Canadian service that helps a user understand in pounds and pence (or dollars and cents) how much of any return they might expect to keep after taking charges into account. If you’ve a couple of minutes to spare, it’s worth a look as an example of just one possible approach.
No prizes for clarity
For the past four years at the lang cat, we’ve tried to give away a Clarity Award in the direct platform space (where, without an adviser in the picture, how the platform helps consumers clearly matters more) but haven’t found anyone who we think measures up.
Criteria list
Top of the list of criteria for anyone to be a worthy winner is Charges. We say these should be “clearly disclosed and broken down, for example what is paid, to whom and why. In short, the total cost of investing should be clear and expressed in pounds and pence – examples, ideally personalised, are also a winner.”
Under Engagement, we’re keen on “explaining complex things in an accessible way that works for the investor (infographics or video clips, etc)”.
For Investment options, we’re looking for a platform to clearly describe not only the funds, but what using them means in practice. For example, if a special discount is available, explain in plain English then what that means – for instance that it could prove to be more difficult, time-consuming and expensive to transfer that away to another platform.
The obvious next – and possibly more interesting – question is why aren’t platforms taking on this challenge? This is because of compliance, because of fund manager relationships, because we’re a neutral service provider, and because technology and development costs offer limited obvious benefit to us. These are some of the answers I might predict.
Market study II
This brings us neatly on to the second feature outing for investment platforms in the regulator’s report: confirmation that the FCA will shortly be launching another market study; this time into investment platforms. Yes, platforms are next on the list to be excoriated (or not, depending on what is unearthed).
This study is in response to a variety of concerns:
• That platforms aren’t as effective as they could be in helping investors make informed choices.
• How details of in-house funds for our vertically integrated friends are presented relative to third-party equivalents. The same goes for active funds compared to passive funds.
• Barriers to switching platforms make it difficult and costly for customers to shop around.
• Whether platform-buying power is being used as effectively as it could be to drive down fund costs and, where it is, whether enough of the benefit is being passed on to consumers.
• Whether platforms offer value for money full stop.
There’s a connecting theme through all of this. It is value for money. Chart 2 sheds some light on how direct investors view the idea.
Now we can have the usual argument about value being a subjective thing (it is, by the way) but that’s for another day. I think the real challenge here is in creating the right conditions for consumers to be able to make an informed value judgement.
How technology can help
Technology could be our friend in this. Conceive of a service helping consumers to understand their total cost of ownership for investments, and the potential impact of this on returns – on a comparative basis across several options and variables – and put that into every buying decision.
In last month’s column, I wrote about the explosion of activity in the robo-advice sector and how we are now in real danger of user interfaces that help support consumer goals – and don’t look like they’re from 1998 – becoming the norm. That’s moving in the right direction at least.
Last month, I looked at some of the astronomical amounts being invested in tech by adviser platform providers. My beef was that platforms should be spending a lot less time and money trying to out-manufacture each other – and a lot more on really nailing the basics.
I count supporting informed decision-making as a basic goal, and one that it is in adviser interests to push for. It should be a priority for everyone in the value chain – asset managers, platform service providers and advisers alike – to help drive greater clarity, transparency and comparability of charges for investors.
It’s called treating customers fairly, and it leads to more effective competition. If we don’t sort it out for ourselves then we can probably expect more FCA tanks pulling up on the industry lawn. Platforms – you have been warned.
Mark Polson is principal of platform and specialist consultancy the lang cat
