Online brokers to be scrutinised by Financial Conduct Authority
The Financial Conduct Authority (FCA) has announced plans to take a close look at whether competition is working effectively between online brokers, also known as investment platforms.
The FCA will look at ‘potential competition issues’, including how online brokers charge consumers and whether they have the incentives and ability to put competitive pressure on asset management charges.
The review will take place next year, meaning that it will be a separate study from the FCA’s current report into the asset management industry, which is expected to be published in the second quarter of 2017. But findings from the asset management study will be put forward and used as a basis for the platform report.
In November, when the FCA released its interim report into the asset management study, the regulator noted that it had seen examples of ‘some poor practice when platforms process switches’.
The FCA reminded firms that they should not impose unreasonable post-sale barriers on customers when they change product, switch provider, submit a claim or make a complaint.
The regulator also flagged the problem that retail investors ‘do not appear to benefit from economies of scale by pooling their money together through direct-to-consumer platforms.’
‘The interim report for the Asset Management Market Study identified a number of potential competition issues in the investment platforms market. These included: complex charging structures, whether platforms’ investment tools enable effective choice, and whether platforms have the incentives and ability to put competitive pressure on asset management charges,’ said the regulator.
‘We will conduct a market study to explore how “direct to consumer” and intermediated investment platforms compete to win new and retain existing customers. The study will explore whether platforms enable retail investors to access investment products that offer value for money.
‘The investment platform market study will allow us to understand the causes of any competition problems in this market and assess what we can do to improve competition between platforms and improve consumer outcomes.’
An 'all-in-one' fund charge is one of several remedies being proposed by the Financial Conduct Authority (FCA) to address 'weak' competition in the asset management industry.
One of the ideas on the table is for asset management firms to provide an estimate of any implicit and explicit transaction costs (not currently included in the annual charges quoted by fund management groups), which will then be incorporated into the ongoing charges figure (OCF).
The FCA has suggested various remedies for asset managers to enable them to move direct investors from 'expensive to better-value share classes'.
One idea is that of 'shining a light' on the differences between old and new share classes. Another option is to communicate with direct investors (those who hold their funds directly with the fund manager, rather than through an intermediary such as a broker or platform) as a means of finding out whether they would like to switch into the cheaper share class.
Money Observer is calling on fund managers to write to directly invested customers, explaining that they could move their money elsewhere and own the same fund more cheaply.
We would prefer managers to go further. We appreciate there is an administrative cost, but we think any charges levied should be reduced and made transparent.
Our campaign has been backed by respected industry figures, including Daniel Godfrey, the former chief executive of the Investment Association, Boring Money's Holly Mackay, Candid Money's Justin Modray, Damien Fahy, founder of website moneytothemasses.com, and the Lang Cat.