The UK regulator the Financial Conduct Authority is targeting the £592bn fund platforms industry as part of its ongoing probe into the investments marketplace.
The FCA announced via a statement earlier today that it has published the terms of reference for the Investment Platforms Market Study, which sets out the scope and topics that will be covered by its latest probe.
The UK financial serves watchdog said that it is launching its latest study, as investment platforms are increasingly used by consumers and financial advisers to access retail investment products and to manage investments.
In particular the regulator is concerned at the stranglehold that the platforms industry has over the UK with more than 78% of the retail investment market now invested via platforms.
Christopher Woolard, executive director of strategy and competition at the FCA, said: “With the increasing use of platforms, and the issues raised by our previous work, we want to assess whether competition between platforms is working in the interest of consumers.
“Platforms have the potential to generate significant benefits for consumers and we want to ensure consumers are receiving these benefits in practice.”
The FCA has set a date of 8 September for responses to the paper and aims to publish an interim report by summer 2018 which will set out preliminary conclusions and any potential remedies to address concerns.
Bill Vasileiff, pictured left, managing director at international fund platform Novia Global, welcomed the FCA’s report, but warned against too many changes potentially further confusing the consumer.
“It [the study] will be better for the consumer. Overall I don’t think that there is that much for the platforms industry to worry about. There has been some talk about cash rebates but I think that could actually confuse the consumer.”
Rob Yuille, head of retirement policy, at the Association of British Insurers, said: “Platforms have revolutionised the way that advisers and consumers invest, minimising fuss and providing a more holistic view of performance for consumers. They are a growing part of the long term savings market, where many types of firms compete to offer a wide range of products to suit customers’ needs.
“The FCA’s study rightly reflects this breadth and diversity, and the many factors that can have an impact on customer outcomes.”
Over the last eight years, assets under administration (AUA) for both adviser and direct platforms has increasing from £108bn in 2008 to £592bn in 2016, accord to the report.
The report stated: “The platform sector has steadily grown over the last eight years, with assets under administration (AUA) increasing from £108 billion in 2008 to £592 billion in 2016. Combined with £100 billion from firms offering similar services, this accounts for 78% of the retail investment market.
“Although intermediated platforms, which investors can access through their advisers, still take up a larger market share, direct to consumer platforms, which investors can access directly, are becoming a more important way for consumers to access retail investment products.”
Many platforms offer investors and their advisers a range of information and tools to help them make investment decisions and some also offer their own investment products.
Value for money?
As part of the study, the FCA added that it will explore whether platforms help investors make good investment decisions and whether “their investment solutions offer investors value for money”.
In principle, platforms allow retail investors to pool their money and achieve better investment returns. The FCA will look at how platforms compete in practice and whether they use their bargaining power to get investors a good deal.
To provide investors access to retail investment products and information about these products, platforms interact with other platforms, advisers, asset managers and fund ratings providers. The FCA will assess whether these relationships work in the interests of investors, it said.
This Market Study follows on from the Asset Management Market final report published in June 2017, which highlighted a number of potential competition issues in the platforms sector.
Regarding the impact of financial advisers on the marketplace, the FCA said that when consumers receive financial advice, their financial adviser may also recommend a platform to use or may choose a platform on behalf of their clients, a relationship that it wants to investigate further.
“A principal-agent relationship therefore often exists between the consumer and their adviser,” the FCA said. “We will assess how this relationship affects the competitive dynamic between platforms. We will explore what factors advisers prioritise when choosing, reviewing and deciding whether to switch platform, and whether platforms consider the end investor when competing to win business from advisers.
“We will also consider whether advisers pass the benefits of competition between platforms onto investors in the form of lower adviser and platform fees.”