The Financial Conduct Authority (FCA) is proving an increasingly outspoken champion of competition, and the recent Investment Platforms Market Study interim report shone a light on several anti-competitive practices which may be delivering poor value for clients.
The keenly anticipated report confirmed that switching platforms can often be unnecessarily difficult.
As an illustration, the report included a survey which found that 7 per cent of clients who had tried to switch platforms had given up, either because of the complexity of the process or the high exit fees charged by many providers.
These are perennial problems which the industry has been unable to self-regulate.
The sheer complexity and cost of switching platforms - I know of exit fees that can hit 6 per cent - is fundamentally anti-competitive and prevents customers getting good value.
As for the red tape involved in switching, the FCA’s report said it “generally” takes between a couple of weeks and a few months to switch platform, but it “can take longer”.
Such delays are indefensible. There is no good reason for switching to take weeks, let alone months.
While the FCA pointed out that advisers update their platform lists as part of their annual due diligence exercise, it also noted that few advisers switch existing clients, even when there are other options available which could serve their clients better.
Clearly, platforms are an important tool that enable advisers to deliver an effective and seamless service to their clients; but the fees have to be proportional to the quality and depth of the offering.
The FCA report identified examples of platform charges ranging from 20 basis points (bps) to 240bps for a near-identical service, a gap which could result in a potential £650 difference in returns over a five-year investment term.
This was just an interim report and it remains to be seen whether the FCA will eventually ban exit fees, but its desire to improve competition is clear, and the ball is now in the industry’s court.
What matters now is how things will change, when, and on whose terms.
I suggest the best way to level the playing field - both for clients and providers - would be to create a standardised switching process across the industry.
Providing there are no special circumstances, there really is no reason why it should take any longer than 24 hours for a client to be switched from one platform to another.
Armed with this knowledge, financial advisers and end clients will be able to make more informed decisions on which platform best suits them.
We know that, as in all industries, competition only truly benefits consumers if there is a clean, efficient way to compare and change providers.
It is this suggestion that I hope the FCA takes into consideration as it moves into the ‘next steps’ part of its review.
For their part, advisers must demonstrate to their clients that they are seeking to provide better value on their investments, not just once but on an ongoing basis.