The FCA will launch a market study on platforms next month to assess the competition of the platform market.
The Investment Platforms Market Study will look into how D2C and adviser investment platforms compete to win new clients and retain existing customers, and determine whether platforms allow investors access to products that offer value for money.
In the interim review, the FCA found that investors were charged a range of different platform fees, which made it difficult to analyse investment costs.
In its final report on the Asset Management Study the regulator said respondents “confirmed our view that further work is warranted to assess the significance and scope of the issues raised”.
“The Investment Platforms Market Study will allow us to understand the causes of any competition problems in this market and assess what we can do to improve competition between platforms and improve consumer outcomes,” the FCA said.
“The financial advice industry continues to be one of our priorities and we will continue to monitor and act on any risks to our objectives in this area.”
The FCA will also assess the impact of increasing vertical integration on the advice market.
David Morrey, partner and head of investment management at Grant Thornton UK, is not optimistic on how platforms will fare in the study.
“While that work remains to be performed, the focus is inevitably going to be on whether platforms provide cost efficiencies from which investors benefit. The Market Study leaves that as an open question, but implies that the answer is no.”
Ian Peacock, head of UK and Ireland at IG Group, called for the study to focus on standardised costs, the removal of transfer fees, a clampdown on hidden fees and “an examination of the various online comparison services on investment platforms and their true independence”.
“We welcome the upcoming market study into investment platforms. We believe that a low cost online service should not compromise at all on customer service, resulting in greater consumer control and clarity.”
Miranda Seath, head of intermediary research at Platforum, says more clarity is required from the FCA on platforms’ recommended lists.
“Two areas that we expect the Investment Platform Market Study to focus on – the influence of fund ratings firms and select lists – indicate that the regulator is scrutinising the D2C market more closely. The FCA looks to be oscillating on platform select lists – are they anti-competitive or are they invaluable to the consumer?
“We estimate 38 per cent of flows on direct platforms go to select lists. To get onto select lists, fund managers sometimes offer discounted charges to the platform users but the lists are dominated by actively managed funds. Passive providers are less visible although they are increasingly appearing on existing select lists or additional passive select lists. Exchange traded products like ETFs and investment trusts, however, are often overlooked.”