The FCA has set out its main concerns with the platform market and admitted it is looking into platforms partly because the asset management sector told the regulator to do so.
The regulator first raised the issue of platform competition in June as part of its final report on the asset management market. It then published the terms of reference for a separate platforms market study in July.
Speaking at the Platforum annual conference in London last week, FCA director of competition Mary Starks said the platforms market study will allow the regulator to go into more detail to answer questions about whether the platform market is working as well as it could.
She said: “In terms of why we care about platforms, the flippant answer is because the asset managers told us that we should. There was a bit of ‘take them, not me’ going on there.
“But in fairness, the asset managers also raised some serious questions around the relationship between competition in the product market and competition in the distribution market. Their basic point was if you sharpen up competition in the product market, how can you be sure consumers will ever see the benefits of that, because it will all get captured by the distribution layer. This is a perfectly fair question, and it links to our real reason to look at platforms, which is that they have a really important economic function.”
Starks argued while the regulator was interested in competition and value for money, it will not be focused purely on price.
She said: “Our statutory objective is to promote competition in consumers’ interests, which is really important. I hear the phrase ‘race to the bottom’ quite often, and I cannot be clear enough about this, that is absolutely not what we’re after. We’re not after a race to the bottom type of competition dynamic.”
She was keen to stress the areas the regulator is assessing in the platform market are only “potential concerns” at this stage, and said the FCA was “a long way yet from concluding whether these are real problems or not.”
Starks said: “The areas we are looking at are around platform fees, and whether customers can reasonably understand the full cost of investment, and compare between different options.
“There are also some issues around economies of scale; we didn’t find any extensive discounting of funds on platforms and so we’ve got questions in our minds of where the economies of scale in this business are going and why consumers aren’t perhaps benefiting a bit more.
“We want to understand how easy it is for investors to switch from one platform to another. And we’re also very keen to understand platform business models and whether there are any conflicts of interest in terms of which products get pushed through these distribution channels.”
Starks added the FCA’s core questions are around how competition plays out between platforms, how competition plays out on platforms between different investment products and whether competition between platforms for adviser business plays out well for investors.
She said the regulator will also look at adviser bargaining power, and the role of advisers in driving improvements in platforms.
The consultation on the terms of reference for the platforms market study closed last month. The FCA plans to publish an interim report on its findings by summer 2018.