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

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.

It's no surprise that D2C platforms are being scrutinised.Martin Barnett

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.

The changes required are themselves not rocket science.Martin Barnett

It has conducted two compliance reviews so far, one in February 2019 and one in February 2021.

The watchdog said these highlighted some failings in relation to cost information shown in marketing documents not matching the information in regulatory documents, and some firms using assumptions which make costs look as low as possible.

Fundscape's head of content, Martin Barnett, said it was no surprise that D2C platforms are being scrutinised.

"The FCA had said it would keep platforms under review and has renewed focus through its consumer investment strategy.

"What the FCA is asking platforms to fix is reasonable and to the benefit of the consumer. The changes required are themselves not rocket science – the FCA even outlines what they could look like under its good practice examples.

"Interactive tools and calculators can provide the required information before a consumer has to commit to any decision."

'Sheer volume of disclosures'

Advised platforms operate under the same regulatory requirement to produce annual cost and charges statements, but not all advised clients will have advice fees paid via the platform and clients will often have investments across more than one platform.

This means in practice, advised clients will look instead at the annual review the advice firm will send them instead.

While the regulator's latest research focuses on D2C platforms, some reckon advised platforms could also heed the FCA's warning.

A financial adviser recently told me that she had to provide a client over 100 pages of various documents and disclosures for a fairly simple pension transfer.Heather Hopkins

Chief executive of platform consultancy NextWealth, Heather Hopkins, said being clear about costs was “critical” for the overall platform market. 

“Articulating this in a way that a customer sees the impact in pound and pence terms both now and in the future is also important,” she said.

“I worry that the signal can get lost in the noise given the sheer volume of disclosures. A financial adviser recently told me that she had to provide a client over 100 pages of various documents and disclosures for a fairly simple pension transfer. 

“If we expect customers to read and understand disclosures we need them to be short and to the point. My hope is that the Consumer Duty will usher in a new wave of reducing disclosure for disclosure's sake.”

ruby.hinchliffe@ft.com