Financial Conduct Authority  

FCA warns of 'poor' practices ahead of D2C platform review

FCA warns of 'poor' practices ahead of D2C platform review

The Financial Conduct Authority has highlighted "poor practice" among non-advised investment platforms ahead of an industry-wide review it will carry out on improving the switching process.

The regulator warned direct-to-consumer investment platforms they must not “mislead” clients with unclear or unfair information relating to charges.

The FCA told FTAdviser that while its latest research was related to D2C platforms specifically, "that’s not to say" the rules or principles it sets out don’t apply to advised platforms.

Referring to the findings of its Investment Platforms Market Study Final Report, which was published back in March 2019, the regulator's latest review, published earlier this week (May 4), catalogued significant poor practices.

The City watchdog said it had found: a lack of a succinct comprehensive list of charges being clearly signposted; information being spread out across different webpages; too many links to different sections and pages; and the omission of a clear statement of the interest applying to any cash held.

In some cases, the FCA found this information had been "hidden away" in "legalistically worded terms and conditions".

The watchdog has therefore honed in on platforms’ disclosure of costs and charges information, reminding firms to take a number of steps to ensure they are exhibiting good practice:

  • Give clients all costs and related charges in “good time” before providing the relevant service;
  • Provide an illustration showing the cumulative effect of costs on return for investment services;
  • Provide aggregated costs and charges, expressing them both as a cash amount and as a percentage, and itemising them in a breakdown;
  • Make certain disclosures, such as account fees and ad hoc admin fees;
  • Include ‘custody costs’/’custodian fees’ in costs disclosure;
  • (Directed at Sipp providers): “Not act for their own benefit by making and retaining a secret profit from the customer’s money”
  • Provide consumers with distance marketing information in good time before they are bound in a contract;
  • And to “communicate information to them [clients and prospective clients] in a way which is clear, fair and not misleading”.

The regulator said its research "focused on the experience of non-advised consumers".

"We looked at how easy it is to access charging information and whether the information available helps them understand what they pay," it said.

"We could generally identify and compare the main platform charges and the fund charges were signposted. But activity-based charges were sometimes harder to locate, such as telephone trades costs, foreign exchange, and interest on cash."

Where consumers could not find information about certain charges, the FCA said consumers were left "not knowing" whether they would be charged.

The regulator did, however, highlight some good practices. It said some platform providers were providing single comprehensive lists of all fees and charges applicable, as well as interactive tools, infographics, calculators and worked examples.

It also drew attention to instances of "simple and clear explanations of charges" - for example via information buttons when hovering over terms or phrases used - and some platforms which are stating whether any exit fees apply or not.

The original review

Back in 2019, the FCA’s Final Report found that, while competition was “generally working well”, some consumers and financial advisers found it difficult to shop around and switch to a platform that better meets their needs. 

The regulator said at the time: “Consumers can find it difficult to switch due to the time, complexity and cost involved - driven in part by exit charges and difficulties switching between unit classes.”

The report prompted platform industry body Star to implement a framework to improve the switching process for consumers.

Since publishing its Final Report, the FCA said it has “closely monitored” the industry’s progress to improve transfer times and customer communications.