Investment Platforms Market Study

On 14th March 2019, the FCA published the final report on its Investment Platforms Market Study which sets out its views and findings on how effectively the market is working from a competition perspective and a package of changes they would like to make. 

Making transfers simpler
The FCA proposals seek to improve consumers’ ability to switch between platforms and so enable them to benefit from lower costs and/or better functionality that suits their needs. In turn, they expect this to improve competition in the sector, including lower prices, increased efficiency and an improvement in the consumer experience. They consider that overall this will help deliver public value through a better functioning retail distribution sector.

Investment platforms are increasingly being used by financial advisers and their clients to access retail investment products and manage investments online. The FCA study explored how investment platforms compete to win new customers and retain existing ones, to help assess how competition could be improved within this market and develop better consumer outcomes.

They have concluded that whilst competition is generally working well. However, concerns were raised 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.

The FCA has set out proposals to make it easier for consumers to move their assets to a new platform without unnecessary liquidation of investments. These proposals can be summarised as follows:

• a requirement for platforms to offer consumers the choice to move units in investment funds that are common to both platforms via an ‘in-specie ’ transfer;
• a requirement for platforms to request a conversion of unit classes, where this is necessary to enable an ‘in-specie’ transfer to take place;
• a requirement for platforms to ensure that consumers moving onto a new platform are given an option to convert to discounted units, where they are available for investment by the consumer.

Exit Fees
The Final Report further concludes that there is a strong case for addressing platform exit fees, and that the FCA believes a ban is likely to be more effective than a cap in removing this barrier to switching and increasing firm incentives to deliver better services.

The proposed restriction on exit fees would apply to platform service providers and to firms offering a comparable service to retail clients.

The FCA will review progress made by the industry to improve the switching process later this year, and again in 2020, if needed. It will consider taking forward further regulatory action if the efficiency of the switching process does not improve.

Consultation on final rules
Following publication of the report, the FCA issued a consultation paper on proposed new rules. The FCA is encouraging all firms in the retail investment distribution market to consider the discussion questions set out in the paper.