So you’ll have had your summer, as we say in Edinburgh, and I think we can all stop rain dancing now. Back to work you go, and no moaning.
When you’re back, you’ll find that your friends and ours at the FCA have done the regulatory equivalent of ‘chap-door-run’, which is to say they dropped their interim investment platform market study on our doorstep in July and promptly disappeared off on holiday. The scamps.
You’ve no doubt read about some things that were in it or not in it already, but this is first and foremost a platform-focused column and if you think I’m not going to write about it here you are very much mistaken.
Despite a year’s work and almost 400 pages of output, our main reaction to the interim report, together with its eight annex documents, remains this: ‘meh’.
An opportunity missed
So what’s our beef? To get to the heart of it, we need to go way back to the prelapsarian times of last summer. Then the nascent report’s terms of reference posed two headline questions:
- “How do platforms and similar firms compete on the price and quality of the services and products they offer and the products over which they have influence?” and;
- “Do platform and similar firms’ investment solutions offer investors value for money?”
Sadly, neither of these questions comes close to being answered in the interim report. We also felt the lack of a proper investigation into the really big themes in platforms, but I’ll come back to that. The report was further complicated by smooshing (technical term) the direct and advised markets together, which is understandable at one level, but profoundly unhelpful at another. In our summary paper (available to download from the Lang Cat website), we have attempted to de-smoosh the two markets and present them more logically.
Enough whining, let’s take a look at what we did get. The report identifies five groups of consumers for whom competition between platforms is not working well:
- Those who would benefit from switching but can find it difficult;
- Those who are price-sensitive but can find shopping around difficult;
- Those who use model portfolios. The risks and expected returns of model portfolios with similar risk labels are unclear and can lead to confusion about how much risk they are facing;
- Those who have large cash balances on direct platforms. They may not know they are missing out on investment returns and/or that they are paying charges;
- Those who no longer have an adviser and are still on an advised platform, but may face higher charges and lower levels of service (referred to as ‘orphan clients’).
Before we get too negative, it’s important to note that the supporting consumer research (conducted by NMG) shows satisfaction with platforms is high, for both advised and non-advised customers. Breadth of investment choice rates particularly highly as an important factor, but charges carry the lowest satisfaction rating.
It is also important to note that there are other influences on satisfaction levels beyond the platform itself, with investment performance and the adviser relationships understandably being at the forefront of customers’ minds – and those customers naturally conflate all the different elements together. These issues are naturally more prevalent where there is no adviser present to tutor the client in the ways of righteousness.
But the interim report also fails to reflect that, even among advised platforms, there are numerous differences between the various models. The impact of vertical integration is touched on but not fully explored.
The terms of reference asked: “Do the drivers of profitability affect firms’ incentives… and what are the implications for investors?” And for me, this is the biggest miss of all in the paper.