DIY Investor Magazine
| August 2017
21
decisions and whether their investment solutions offer
investors value for money. The FCA wants to find out
whether the way in which platforms interact with other
platforms, financial advisers, fund managers and fund
ratings providers work in the interests of investors.
Due to report in 2018, the FCA probe will focus on five
broad areas:
•
Barriers to entry and expansion:
Do large
platforms benefit from economies of scale which
smaller firms and new entrants struggle to match?
•
Commercial relationships:
Are platforms willing
to negotiate a competitive price on investment
charges, do commercial relationships drive
investment choices, and what are the implications
for investors?
•
Business models and platform profitability:
Do
the drivers of profitability affect firm incentives and
the factors over which they compete, and if so how
does it affect investors?
•
The impact of financial adviser platforms:
Do
these compete in the interests of the end investor,
and are any benefits passed through to investors?
•
Customer preferences and behaviour:
Do
platforms enable consumers and advisers to assess
and choose services and products that offer value
for money, and do new challengers struggle to
compete as customers face barriers to switching?
WHAT CHARGES WILL BE UNDER THE
MICROSCOPE?
All aspects of platform charging will be looked at
including the way in which many cross-subsidise fees,
meaning some investors pay more for investment
services, to reduce the cost, or waive them for others.
Although some have not changed significantly in
a decade, or may even have gone down,
dealing
commissions
will be under close scrutiny as even £10
per trade may represent a huge mark-up on the actual
transaction cost; what price blockchain technology?
Other anomalies include the
treatment of funds
–
those platforms not charging on an AUM basis may
still charge a commission, whereas others may be
happy to get the cash on the platform, whilst whacking
commission on to share trades. Sure to be more
closely inspected by FCA than they are by Average
Joe are
entry and exit charges
; it can be costly and
complicated to move platform, and may be a barrier to
entry for new, potentially cheaper players.
The sliding scales and thresholds
are also likely to
get the once over - some firms charge a flat fee which
is more cost-effective for those with big pots, while
others work better for those with small sums who trade
infrequently and thereby pay only occasional trading
commissions. The review will get to the very heart of an
industry that is still quite ill-defined – one wag in a recent
blog declared that the only platform he professed any
knowledge of was at Waterloo Station, but the precise
definition of an XO broker, D2C platform, wrap platform,
lifeco, wealth manager, online investment manager,
digital investment manager can be hazy to say the
least; add to that the burgeoning number of automated
investment managers – robo advisers – and the scope,
and the importance of the probe will be apparent.
The fact is that whatever they are called, platforms
offering financial services to retail investors – be they Do
It Yourself, Do it With me or Do it For me – have become
increasingly prevalent since RDR and their importance
can only increase as state provision declines and we
are encouraged towards financial self-determination.
The advice gap remains and platforms deliver
guidance and support to investors; they can also bring
pressure to bear on asset manages to deliver improved
performance at reduced costs, negotiating discounts,
promoting good funds and highlighting poor performers.
The asset management study was not solely based
upon price, but rather on value and that is likely to be
the case when retail investment service providers are
given the once over.
The regulator’s decision to take a detailed look at the
platform sector, and in particular the value for money
platforms deliver for savers should be welcomed,
particularly now that the advent of ‘wealthtech’ will allow
platforms to impact all aspects of our financial lives.
In terms of engagement and awareness the UK lags
some way behind the US where the ‘401k/fifty-nine-and-
a-half’ conversation is a dinner party staple.
However, DIY investing is growing apace in the UK
and with more information and education, tips and
techniques, engagement and transparency many more
will be equipped to confront the very real issues of
student debt, property purchase, saving for retirement
and investing for income. This will become all the
easier it the FCA can cut through the jargon, ensure
investors have access to good information and support
and concentrate on achieving their financial goals; in
the States many proclaim ‘
FIRE
’ as their objective –
F
inancial
I
ndependence,
R
etire
E
arly – sounds like it
might have legs this side of the Pond.
