Adviser Platforms and the FCA: in the following analysis, Darren Winfield, Insight Consultant at Defaqto sums up the key issues adviser platforms have faced in the response to navigating Consumer Duty.
Adviser platforms play a crucial role in the financial advisory industry, offering a suite of tools and services that allow financial advisers to manage their clients’ investments and other financial products.
We are now past the date of implementation of Consumer Duty and these platforms are now under increased scrutiny to ensure they align with new regulatory expectations aimed at enhancing consumer protection.
Below are the key issues related to adviser platforms and their response to the Consumer Duty.
1. Consumer Duty on Existing and Closed Products: Compliance Challenges
The FCA’s Consumer Duty requires all financial firms, including adviser platforms, to ensure that both existing and closed products meet the new standards set out by the regulation.
The Duty’s core objective is to ensure that firms act in the best interests of retail customers by raising the bar for consumer protection and fair value.
For adviser platforms, this has meant a comprehensive review of their entire product range, including those that are no longer actively marketed but still held by clients.
Despite the urgency of these requirements, not all platforms and providers have fully achieved compliance.
The second compliance milestone, which required adherence to Consumer Duty standards for closed products, has already passed, yet some platforms are lagging behind. This incomplete implementation poses significant risks, both for the platforms and their clients, as failing to meet these standards could lead to regulatory penalties and harm to consumer trust.
In spite of the complexities associated with the closed product deadline, platform providers should remind themselves that the consumer duty is not just in the interest of clients, but of themselves too.
2. Platforms’ Response to FCA on Consumer Duty and Interest Rates: The ‘Double Dipping’ Concern
In December 2023, the FCA issued a “Dear CEO” letter addressing key concerns related to the implementation of the Consumer Duty, with a particular focus on the practice of ‘double dipping.’
This practice is at odds with the Consumer Duty’s emphasis on fair value and transparency. At Defaqto the data we hold for interest rates is still showing that many platforms are not passing
on all of the interest earned on client cash to their clients, with some also charging clients to hold cash in their account. A case of deducting interest earned on the client’s money and charging them for the experience.
The FCA’s letter urged platforms to reassess their fee structures, especially considering recent interest rates, which have brought renewed scrutiny to how platforms and advisers charge for their services.
However, we understand that not all platforms have responded adequately to the FCA’s concerns. This lack of response indicates a potential gap in compliance and raises questions about whether these platforms are fulfilling their obligations to provide fair value to consumers.
3. Impact on the Adviser Community and Their Clients: Navigating Non-Compliance
The ongoing challenges with platform compliance under the Duty have significant implications for the adviser community and their clients. Advisers rely heavily on these platforms to provide the backbone of their service offering, from investment management to client reporting.
If a platform fails to meet the Consumer Duty standards, then it probably also means the advice firm is also failing to meet the standards.
For advice firms, this situation presents a dilemma: sticking with a non-compliant provider could expose their clients to potential harm and themselves to regulatory risks, but transferring clients can be complex, time-consuming, and costly.
Advisers must weigh the potential benefits of moving to a compliant provider against the disruption that such a move might cause. Whatever the decision, it impacts on their ability to be Consumer Duty compliant and provide fair value.
4. Fair Value Assessment: Have Adviser Platforms Revisited Their Obligations?
A central tenet of the Duty is the requirement for firms to ensure that they are providing fair value. This means that the costs incurred by consumers must be proportionate to the benefits they receive.
This requires thorough assessments of their products and services, considering factors such as pricing, the quality of service, the options available and the outcomes delivered.
The outcomes of these assessments have varied. Some have taken proactive steps to simplify their fee structures, reduce costs, and enhance the value delivered to clients. Others, however, have been slower to act, raising concerns about whether they are meeting the FCA’s expectations.
While advice firms can take some peace of mind from the platforms in-house assessments, they are still responsible for conducting their own assessments of each third party they recommend. Just because a platform states it provides fair value does not mean that the advice firm recommending it provides fair value by using it.
Overview of Consumer Duty: Raising the Standards for Consumer Protection
The Duty is designed to ensure that financial firms operate with a heightened focus on consumer protection. The Duty is underpinned by several core principles that set the standard for how firms should interact with retail customers:
· Acting in Good Faith: Firms are required to act honestly and fairly, ensuring that their actions benefit the customer.
· Avoiding Foreseeable Harm: Firms must take proactive steps to prevent harm to consumers, ensuring that products and services are designed and marketed with the customer’s best interests in mind.
· Enabling Customers to Pursue Their Financial Objectives: Firms must support customers in achieving their financial goals by providing clear information, appropriate products, and ongoing support.
Platforms, like advice firms, must now demonstrate full compliance across their product range, including those no longer actively sold. Both can also expect to have to report their actions directly to the FCA. It is also worth remembering this is not a one and done exercise and the FCA plans to act against firms that have not met the required standard.
Conclusion: Navigating the Future of Adviser Platforms Under the Consumer Duty
The introduction of the Consumer Duty has brought significant changes to the financial services landscape, particularly for adviser platforms.
They must now operate under stricter regulations, ensuring that all products — whether active or closed — deliver fair value and meet the heightened standards of consumer protection.
At Defaqto we see the duty reflected in the selection criteria being used. Indeed, it is common to see platforms selected based on three foundation criteria:
· Target market compatibility
· AKG financial strength rating
· Defaqto service rating
As the FCA continues to monitor compliance, adviser platforms and the advisers who rely on them must remain vigilant, ensuring that they adapt to these new demands to protect both their clients and their businesses. Those that succeed in aligning with the Consumer Duty will be well-positioned to thrive in an increasingly regulated and consumer-focused market.
