How will the FCA assess value for money on platforms?

How the FCA assesses value for money will be crucial to its upcoming platform market study as the regulator prepares to investigate competition in a sector with a wide range of business models.

In its 2017/18 business plan, the FCA revealed it will focus on both direct-to-consumer and advised platforms through a market study to find out how they compete to win new customers and retain existing ones.

The study, which is set to conclude in 2018/19, will also investigate if platforms allow customers to access products that are value for money.

The regulator says it will review last year’s interim report on the asset management market study, which found a number of potential issues relating to competition in the platform market.

The issues identified in that report include complex charging structures, the incentives and ability platforms have to put pressure on asset management charges, and if platforms’ investment tools give customers enough choice.

The business plan announcement follows clear signals the regulator is keeping a watchful eye on the retail platform market. In February 2016, a six-page FCA report on due diligence addressed the concern that advisers are more inclined to retain an existing platform and “retrofit” research to reflect that decision.

In November, Fund Strategy’s sister title Money Marketing reported the regulator was meeting with platforms over fears replatforming projects could cause consumer detriment.

TCC advisory director Phil Deeks, formerly an FCA technical specialist, says the market study reflects the need to supervise platforms differently. He says previously platforms owned by life and pensions companies would have been supervised as part of that overarching company’s activities.

Deeks says: “Cofunds, let’s pretend it was still part of Legal & General, would be supervised by the FCA’s pension and retirement income team. Although it was one of the largest platforms, the regular focus would have been on activity as it formed part of the L&G group, which is massive. So, actually, it wouldn’t receive the same attention it would have if it was outside a large insurer. Some of it is that the FCA probably wants to have more of a focus on just the platforms.”

What is value?

Platform bosses have welcomed the FCA competition study but identified potential challenges to reaching a cohesive conclusion, including how the regulator might define “value for money”.

Zurich retail platform strategy head Alistair Wilson argues each customer has different investment needs and goals and it is important value for money is not just decided on cost but service as well.

He says: “Client needs are different and they change as markets do. As you get more volatility in markets clients may want to shelter their assets into low volatility assets such as cash, so cash accounts become vital. The challenge is that everybody is looking for a different level of service and it comes in different shapes and sizes.”

Transact chief executive Ian Taylor says the varying business models in the platform market mean the FCA will get a range of results from its study.