On 16 July 2018, the FCA published its interim report on its investment platforms market study.

The FCA reports that it found a mixed picture following its review into the investment platform sector.  The market appears to be working well in many respects, for both advised and non-advised consumers, and customer satisfaction is currently high. Consumers who pay more for their platform tend to get greater functionality on average.

However, the FCA is concerned that competition between platforms is not working well for 5 groups of consumers:

  • switching between platforms can be difficult. Consumers who benefit from switching can find it difficult to do so. The FCA is looking at potential remedies which include supporting an industry initiative to improve switching times and disclosure, and in parallel, considering whether switching costs can be reduced through banning exit fees;
  • shopping around can be difficult. Consumers who are price sensitive can find it difficult to shop around and choose a lower-cost platform. Whilst the FCA does not consider further costs and charges disclosure rules are required at this point, it will assess whether firms are using MiFID II costs and charges disclosure requirements as an opportunity to innovate with different ways of providing costs and charges information to consumers;
  • the risks and expected returns of model portfolios with similar risk labels are unclear. Consumers using these model portfolios may have the wrong idea about the risk-return levels they face. The FCA is planning to conduct further work in this area and may look to introduce measures such as applying risk and performance disclosure obligations for funds onto model portfolios or requiring firms to use standard terminology to describe their strategy and asset allocation;
  • consumers may be missing out by holding too much cash. Consumers with large cash balances on direct to consumer platforms may not know they are missing out on investment returns, the interest they lose or the charges they pay by holding cash in this way. The FCA’s work will include ensuring that its existing rules go far enough in achieving its objective of consumers making informed decisions about the interest, charges and potential foregone investment returns on their cash balances; and
  • so-called “orphan clients” who were previously advised but no longer have any relationship with a financial adviser face higher charges and lower service. Among other things the FCA is going to look at whether different charges levied on orphan clients (compared to non-orphan clients) are appropriate and, if not, whether it should tackle price discrimination between orphan and existing clients.

The deadline for comments on the interim report is 21 September 2018. The FCA will publish its final report in Q1 2019.