The UK’s fund platform market is coming under greater scrutiny with the financial regulator launching a study that asks whether commercial relationships are “distorting” consumer service.
The Financial Conduct Authority (FCA) today published the terms of reference for a study that will cover platforms that sell either directly to consumers or help financial advisers place clients in funds.
In both cases these platforms account for 78% of the retail funds industry.
The platform market is becoming “increasingly vertically integrated, with commercial relationships existing between platforms, asset managers, discretionary investment managers and financial advisers”, the FCA noted.
“These relationships have the potential to distort competition by encouraging platforms to compete in the interests of those with which they have commercial relationships rather than in the interests of the consumer.”
The FCA pointed to concerns raised by respondents to its earlier Asset Management Market Study about complexity of charges and the value for money of ‘model portfolios’ as areas of the platform market worthy of further exploration.
Bella Caridade-Ferreira, chief executive of Fundscape which publishes a quarterly Fundscape Platform Report, said platforms often worked with funds from selected asset managers whom they will give most cash flows too.
“As long as these funds are performing well, the end customer gets a good deal. The issues start when they are not performing very well, particularly when the funds are sub-advised. It’s not easy to undo those sorts of relationships and a platform may be reluctant to because they could be getting a good chunk of money.”
She said the FCA would need to define what represents value for money for consumers and how a framework for this could be governed.
The platform sector has steadily grown over the last eight years, with assets under administration increasing from £108 billion (€123 billion) in 2008 to £592 billion in 2016, the regulator said, using Platforum figures.
Combined with £100 billion from firms offering similar services, this accounts for 78% of the retail investment market, according to the FCA.
Christopher Woolard, executive director of strategy and competition at the FCA, said: “With the increasing use of platforms, and the issues raised by our previous work, we want to assess whether competition between platforms is working in the interest of consumers.
“Platforms have the potential to generate significant benefits for consumers and we want to ensure consumers are receiving these benefits in practice.”
The FCA requested feedback by September 8, 2017, and aims to publish an interim report by summer 2018.
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