The FCA’s terms of reference for its upcoming platform market study have been given a cautious thumbs up from industry participants, but criticisms over missing analysis have gathered strength.
The regulator – which has launched a wide-ranging review of the sector – has taken feedback on the outlines of its study.
Boutique investment house Orbis said the FCA study had also missed what it thought could be valuable changes to the industry, particularly to the benefit of smaller fund groups.
It said: “One solution Orbis has put forward for consideration is to allow adviser platforms to charge asset managers a reasonable listing fee to cover the platform’s costs.
“This would allow managers of all sizes to compete for investor capital on a level playing field with respect to platform access.”
Platform Ascentric said in its response that it hoped the regulator would devote attention to the difficulties associated with advisers moving clients between providers.
Separately, some have taken issue with what they perceive as a lack of focus on how advisers interact with platforms in general.
In July, the watchdog said it would look at whether advisers have a “positive impact on the cost and quality” of a platform, and if and how this was passed on to clients.
However, consultants have said this remit does not go far enough and suggested advisers’ use of platforms should be further investigated.
Graham Bentley, managing director of consultancy gbi2, which also responded to the study, said there were wider issues with the adviser-platform relationship that needed to be taken into account.
The FCA should account for what he described as payments that “feel like commission” and look into the adviser charging model more closely, he said.
“You could argue that financial planners using platforms to run model portfolios are doing it purely as a means of sourcing fee payments. There’s a conflation of investment planning and investment management,” he said.
He added: “If the platform didn’t facilitate fee payments, then they would have to ask [investors] directly who might realise they don’t want to pay for it. With platforms, it’s out of sight and out of mind so the customer’s experience is not much different from pre-RDR. It feels like commission.”
In its July terms of reference, the FCA said it wanted to better understand if the benefits advisers gain from platforms are passed on to clients, and if platform use affects the adviser charging model.
Mike Barrett, of consultancy the lang cat, said the FCA paper “broadly matched” the firm’s concerns with the market – but suggested the study could be a “slow burner”.
“It feels to us like more of a reality check,” he said.
However, Mr Barrett said the regulator should look into the overall cost of investing, particularly when advisers were incentivised to buy funds because of a discount secured by a platform.
He said the lang cat’s own analysis showed platforms’ fund discounts were often only available on services that charged a higher-than-average initial fee, negating any value for the client.
He said: “The FCA is still in the space that it thinks there should be discounts – but it is very counterintuitive, especially if there are barriers to exiting the fund,”
The FCA has said it will publish its interim report on the industry by next summer.
Study to cover all aspects of platforms
Topics to be explored by the FCA:
• Barriers to entry and expansion
• Commercial relationships between platforms, asset managers, fund rating agencies
• Business models and platform profitability
• The impact of advisers and interests of end investors
• Customer preferences and behaviour
IN NUMBERS
Summer 2018
Date by which FCA will publish its interim report into the platform market
78%
Platforms account for more than three-quarters of retail investment assets
