Disclosing more pricing information will not help consumers – but simplifying charges will.
Earlier this year, the Financial Conduct Authority published the interim findings of its platform market study.
In the main, the study found the market appears to be working well for both advised and non-advised consumers.
Nevertheless, the watchdog singled out a number of areas where it may decide to intervene. The remedies it proposed could produce mixed outcomes – some beneficial; others not so much.
Whatever changes the FCA goes on to make, there are three key points it should consider.
Costs and charges
One of the key concerns on the FCA’s mind is whether consumers are able to compare platform charges and if the existing disclosure requirements go far enough.
The FCA is right to hone in on pricing, but forcing platforms to disclose more details on charges would only confuse matters: consumers need simpler charges not more details on them.
We have yet to see the full impact of the Mifid II reforms around cost disclosure, but early indications are that it has not created the intended clarity around pricing.
With so many approaches to charges across the industry, it makes it hard for customers and advisers to interpret pricing on different platforms.
Adding to the confusion is the proliferation of ancillary costs for exit fees, withdrawals, paper statements, switches and hosting model portfolios.
Although headline platform charges might appear low, ancillary fees lead to higher ongoing costs for customers, which they may not have expected at the outset.
The FCA should conduct a broader review of costs to help advisers select the right platform for their customer’s requirements – not just those that may initially appear cheaper. Encouraging firms to remove ancillary costs would help consumers to understand the true price they are paying.
The FCA is also considering introducing ways to make it easier for consumers to switch platforms, including banning exit fees and setting minimum standards for transfer times.
Adopting measures to speed up transfers, coupled with the removal of exit fees, would drive better outcomes for consumers, but it will not solve all the problems advisers face when it comes to changing platforms.
As the FCA estimates, it can take six hours and cost £700 for advisers to move each customer. Time and cost is a barrier to switching for advisers and can arguably leave consumers on less suitable platforms. Advisers would benefit from more guidance from the FCA on this.
In particular, the FCA should re-examine the rules preventing advisers from moving customers in bulk and the need to deliver full advice ahead of carrying out a switch, which is currently holding the market back.
Finally, the FCA highlighted non-monetary inducements – including services such as white labelling and platform tools – as an area of concern.