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FCA considers forcing platforms to cut off advisers' cash

FCA considers forcing platforms to cut off advisers' cash

The Financial Conduct Authority has revealed it may force platforms to shift clients they suspect are no longer receiving advice to accounts which do not pay an ongoing fee to the adviser.

In a 110-page interim report on the state of the platform market, published on Monday (16 July), the FCA found platforms do not actively monitor whether there has been activity on accounts with ongoing advice charges and revealed it wants fund supermarkets to start keeping tabs on the situation.

The FCA's study found there were more than 400,000 "orphaned" accounts on adviser platforms belonging to clients who were no longer being advised which could be affected by this issue.

According to the report, the FCA may need to introduce new rules in order to address this issue.

To address this, the FCA said it was considering whether to impose a requirement on platforms to check, if there is no activity after a year, that their customers are receiving an advice service, and also inform the watchdog of orphan clients who are still paying an adviser for advice they no longer receive.

The FCA has said platforms could do more to get orphan clients to find a new adviser or switch to a direct-to-consumer platform but some have warned this could result in fund supermarkets being accused of poaching clients or severing their cashflow.

Mary Starks, the FCA's director of competition, said the regulator would then use this information to decide how to address the problem - and she wouldn't rule out making platforms simply stop charging for advice if they suspect it isn't being given anymore.

She said: "There are a number of things we could consider. One end of the spectrum is informing the client (they have been orphaned) and telling them they have other options, through to requiring the firm (platform) to do something about it.

"As yet we have not made a decision about where we want to go."

When asked whether she viewed the situation of advisers pocketing cash for a service they no longer gave as being the fault of the intermediary or the platform, Ms Starks said the FCA was not looking to play the "blame game" on this issue.

Platform providers were swift to raise concerns about whether the regulator should force them to police whether advisers were delivering the ongoing advice service they initially agreed with a client.

Bill Vasilieff, chief executive of Novia, said: "A platform provider would not be aware of everything that happens between advisers and their clients. It is possible that a recommendation might be a buy and hold strategy and we would not be aware of the advice in this scenario so clarification on 'inactivity' would need to be sought. 

"We would not be comfortable monitoring ‘inactivity’ and also we believe that any definition of inactivity would easily be circumvented."

Jeremy Mugridge, head of platform proposition at Old Mutual Wealth, said while it was important for platforms to be able to recognise customers who are no longer benefiting from advice whether the plug should be pulled on ongoing advice charges after just one year was a trickier subject.