FCA proposes remedies to address competition in investment platform market
It follows concerns about how platforms compete for particular groups.
The City watchdog is proposing a package of remedies to address competition in the £500 billion investment platform market.
The Financial Conduct Authority said that while competition is working well for most consumers, there are concerns about how platforms compete for particular groups.
They include customers who want to switch platform, those who use model portfolios or direct-to-consumer platforms, consumers with large cash balances and orphan clients – customers who were previously advised but no longer have any relationship with a financial adviser.
Some of the most popular investment platforms include Hargreaves Lansdown, Nutmeg and Interactive Investor.
Investment platforms market study: Interim report (MS17/1.2) https://t.co/UPq57qv1sh— FCA (@TheFCA) July 16, 2018
Shares in Hargreaves Lansdown sank to the bottom of the FTSE 100 on the news, with the stock shedding 4% in midday trade.
As part of its interim findings into the sector, the FCA has proposed a number of measures.
It has pledged to help strengthen the extent to which platforms drive competition between asset managers, introduce measures to make it easier for investors and advisers to switch platforms, and promised to tackle price discrimination between orphan and existing clients.
Significantly, the FCA is proposing banning exit fees after finding that around 7% of all consumers tried to switch but failed to do so.
“The FCA found that barriers to switching are significant and could limit the pressure on platforms to provide continued value for money,” the regulator said.
The FCA is also proposing measures to alert customers who are holding large cash balances.
Christopher Woolard, executive director of strategy and competition at the FCA, said: “This is a market that has seen significant growth in the past five years, with more customers than ever deciding to use a platform to manage their money.
We know that competition is working well for many but it is important that the problems we have identified are addressed so that consumers don't lose out Christopher Woolard, FCA
“We know that competition is working well for many but it is important that the problems we have identified are addressed so that consumers don’t lose out.
“We have outlined a package of measures today to address the issues we have found, but we also want to see the industry step up, making it easier for consumers to transfer from one platform to another.”
The FCA said it is proposing the measures due to the rapid growth in the market, which has almost doubled in size since 2013 with an extra 2.2 million customer accounts opened.
Between interim and final report the FCA will assess industry progress in these areas before deciding whether it should introduce additional remedies.
The FCA is seeking feedback on its initial findings and proposed remedies before publishing its final conclusions about the market in early 2019.