Today’s Investment Platform Market Study is the final report after a nearly two year review of competition among investment platforms. The final report shows that the FCA has come a long way in the understanding of a platform and importantly this report clearly draws a distinction between D2C platforms and adviser platforms.
The executive summary of the report is worth a read. We’ve summarised our view of implications for providers assert managers and life cos below. We will post later our views on implications for platforms and our implications for advisers is covered in this piece for NMA.
1. More transparency pre-purchase
The FCA wants platforms and comparable firms to continue to reduce complexity and improve clarity and availability of information on costs and charges to encourage investors to shop around.
We think this is slightly at odds with the conclusions of the investor research cited in the report. The FCA found that investors say they are price sensitive but don’t tend to review costs and charges before purchase. Costs and charges are a reason to leave a provider rather than a force to choose a provider. Nonetheless, the FCA remains set on encouraging disclosure to encourage shopping around.
The FCA will review progress in making charges more accessible and comparable for consumers in 2020/21.
2. Share class conversion
The FCA has rightly recognised that the complexity and work required to switch platforms is one of the biggest barriers to competition among platforms. This is true of advised and D2C platforms. This affects asset managers because of proposals for share class conversions.
There are two particularly important requirements. The first is that consumers should be able to opt to automatically be put in the cheaper share class when they transfer to a new platform. Second, they are proposing a requirement for the ceding platform to “bring about conversion of the units which the receiving platform can accept for an in specie transfer…”. Share class conversion should help to make assets more ‘slippery’ but it requires that a common share class is available on all platforms.
NextWealth analysis suggests only one of the top 10 adviser platforms can do automatic share class conversion. Three others offer it but they do it manually. This will require work from both asst managers and platforms to implement.
And the bun fight has already begun. A few platforms are out of the gate saying it’s the responsibility of fund groups to sort out consistency of share class.
We also think that this is slightly at odds with the FCAs view that scale players can negotiate on fees. That encourages share class proliferation.
3. Model Portfolio Services
The report pointed to work that is currently being done on model portfolio services and MPS structured as funds. They have signalled that they will look at this in the RDR/Financial Advice Market post-implementation review set to start later in the year.
4. Vertical Integration
We also think the conclusion on vertical integration are important for asset managers . The regulator’s had concluded that vertically integrated firms need to manage their conflicts of interest. There are no further remedies being proposed at this time. This leaves the door open to asset managers considering vertical integration – most likely, by offering a platform or acquiring financial advice.
5. Exit Charges
If you have exit penalties on your products, you will need to ensure you can justify that these are product exit charges. The FCA is consulting on a ban or cap on platform exit charges and the scope is wider than just platform.
And to close on a shameless plug, if you don’t have your tickets for NextWealth Live (26 March 2019), email us and we’ll sort you out.
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