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The investment platforms market study – compliance consultant Tony Catt reviews the FCA’s IPMS

Compliance consultant Tony Catt reviews the FCA’s IPMS and suggests that its main focus on improved switching should benefit both advisers and clients

The snappily-named Investment Platforms Market Study (IPMS) was originally launched back in July 2017. Through this initiative, the Financial Conduct Authority (FCA) wanted to explore how investment platforms compete to win new consumers and retain existing ones to help it assess how it can improve competition within this market and to develop better consumer outcomes.

The FCA has now confirmed its findings in the IPMS Final Report which was released in March this year. It outlines a package of remedies to address the areas of concern which it has identified. Some of these remedies involve supervisory activity or ongoing monitoring of industry initiatives whilst others require changes to the Handbook on which it is now consulting.

Consultation on making transfers simpler

The IPMS Final Report explains the FCA’s own concern that consumers (both advised and non-advised) often find it difficult to move from one platform to another, for reasons of time, complexity and cost. In this Consultation Paper, it sets out proposals to mitigate one of the causes of this concern. The FCA aims to make it easier for consumers to move their assets to a new platform without unnecessary liquidation of investments. The FCA is also proposing a rule to ensure that consumers who move between platforms are given the option of a conversion to a discounted unit class, where this is available to them on the new platform. The regulator says it will review progress made by the industry to improve the switching process later this year, and again in 2020, if needed. They also report that they will consider taking forward further regulatory action if the efficiency of the switching process does not improve.

 

Discussion on exit fees

In the IPMS Final Report, the FCA states its view that a ban on platform exit fees is likely to be appropriate as a measure to reduce consumer harm. The report notes that to achieve its aim, the FCA needs to consider the scope of any such remedy, given that platforms compete in a wider retail distribution market.

The FCA is therefore seeking further views, in particular from firms that were not included in the original scope of the IPMS, on 3 areas relating to exit fees:

  • How an exit fee should be defined;
  • The scope of the intervention, i.e. the types of firm/service that the intervention should apply to;
  • Whether the intervention should be a ban or a cap on such fees.

Discussion

This thematic review seems to be focussing on customers transferring from one platform to another. This leads to the question “what is wrong with your current arrangement?”  and then “what leads you to believe that the prospective provider will suit your needs better?”.

For advisers, these questions of transferring have been rattling on for years. Certainly, advisers will have done their due diligence on the original selection. There is the knowledge in the background that bulk transfers are frowned upon by the FCA as there is the argument about whether the transfer is suitable for all of the clients in the bulk arrangement.

It would have been very tempting for advisers to try to move their business away from platforms that struggled with re-platforming last year. But any plans to move were often made impossible by the compounded effects of the problems of re-platforming coupled with histories of poor administration.

Of course, the attraction of using platforms, particularly for advisers, is that all of a client’s funds are in one place. Platforms offer the opportunity to use funds from different fund houses, giving the opportunity to select “best of breed” for each of the chosen asset classes. Platforms then offer the ability to transfer between funds and fund managers within the same arrangement.

If the platform is doing its job, why would clients or advisers need to move between them? Are there some platforms that offer consistently better support services?

Each platform software looks slightly different and requires a time investment to enable the user to start getting good information efficiently. This familiarity does take time and sometimes the thought of transferring and needing to learn how to use a new system is unattractive, or even downright scary.

As far as costs are concerned, there has been a race to the bottom to remain competitive. This is quite difficult for the platform companies themselves as very few of them are profitable. Many are reliant on the support of their parent companies. There has also been some consolidation within the market to try to gain critical mass.

From the platform research that I have undertaken, the charging structures are tiered. Looking at how this tiering has been designed, it becomes crystal clear of the target markets of the platforms.

Also, from looking at Defaqto star ratings, the client satisfaction seems to run in cycles for each platform. There would seem to be no platform that could claim to be “the best” for any length of time. The awards that are handed out by the industry and media tend to get spread around quite nicely.

It sounds straightforward enough but overall the conclusion is that platforms should focus on what their clients actually want. This is simply the ability to see how much their funds are worth, transaction histories and the ability to switch funds to encash as necessary. Most advisers already use a collection of fact finds, ATR questionnaires, asset allocation tools and other filters to help them to choose the most appropriate funds. Perhaps the platforms should stick to what they are good at.

 

About Tony Catt

Formerly an adviser himself, Tony Catt is a freelance compliance consultant, undertaking a whole range of compliance duties for professional advisers.  Contact Tony [email protected] or call  07899 847338.

 

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