Today is the deadline for platforms to respond to the FCA’s Platform Market Study interim report. In its response, AJ Bell has called for:
• Pounds and pence disclosure of annual platform charges
• Regulatory guidance on bulk platform transfers
• A lifting of the ban on cash rebates
• Improved standards and transparency for model portfolio disclosures
Andy Bell, chief executive at AJ Bell, comments:
“The platform market has grown to a size and importance that merits greater scrutiny but equally it has delivered significant benefits to consumers in terms of lower charges and greater transparency that shouldn’t be derailed by unnecessary intervention. In this respect, the interim report hit the right note in terms of highlighting the aspects of the market that need further debate.”
Pounds and pence disclosure of platform charges
“The FCA is absolutely right to put value for money front and centre of the platform market study and sharpen the focus on revenue margin, expressed as the amount of revenue each platform makes in a year from each £ of assets under administration (AUA).
“Revenue per £ of AUA cuts through the complexity created by different platform charging structures and shows people the level of charges each platform levies per £ invested. I’d like to see a requirement for platforms to publish this figure prominently on their website as £s of revenue per £100,000 of investment, rather than a basis points measure.
“Based on the 2016 numbers from the interim report that would show that platform fees per £100,000 ranged from £220 per year to £540 and people could see where their platform sits on the scale.
“I’d also like to see this taken a step further with platforms required to have a calculator on their website that shows customers the annual charges that potential and existing customers will pay, in pounds and pence for year 1 (and year 2 if it is substantially different to year 1). Simple online calculators like this would allow a meaningful comparison of charges with other platforms to be undertaken, before accounts are opened.”
Regulatory guidance on bulk platform transfers
“Switching is the area I believe is most in need of regulatory intervention, particularly in relation to the suitability requirements for moving advised clients between platforms.
“The platform market has reached a stage of maturity where many technology systems need upgrading and consolidation of providers has started to happen. The inevitable transfer of clients onto new technology platforms is leading to a significant level of disruption at some platforms that may be the catalyst for advisers to decide to move blocks of clients to a better value and more suitable platform for their needs.
“Many advisers are put off moving clients in bulk because of the individual suitability requirements, even where it is clear a better-value option is available to a particular cohort of an adviser’s clients. A switch between platforms can normally be achieved without any change to the underlying tax wrapper(s) or investments. Guidance from the regulator on what it expects of advisers in these situations could make this process easier for advisers, improve competition in the market and result in increased value for money for those involved. Ideally this would pave the way for a simplified suitability process that just focussed on those differences between the ceding and receiving investment platforms such as charges, financial security and functionality.”
A lifting of the ban on cash rebates
“Another barrier to platform switching is the proliferation of multiple share classes following the RDR. A knock-on impact of this complex web of share classes is it has made the process of transferring between platforms harder in cases where investors hold a share class that is not available on the platform they want to transfer to. This can potentially get in the way of investors switching to a better value platform and hence is not helping competition in the market.
“Moving back to a single retail share class for each fund, with discounts applied in the form of cash rebates payable for the benefit of customers (rather than the platform), would make the process of re-registering between platforms significantly simpler.
“This would also make it easier for platforms to negotiate discounts for their customers, in the form of cash rebates paid directly back to their platform cash account, thereby addressing the FCA’s concern that platforms are not using their scale to deliver better value for investors.”
Improved standards and transparency for model portfolio disclosures
“The issues identified in the interim report around the consistency of labelling and risk descriptions of model portfolios have been an issue for some time, but the solution is not to impose greater degrees of commoditisation into a market which has become increasingly more commoditised over time. This will stifle innovation, reduce customer choice and is likely to create unintended barriers for new market entrants as price becomes the only means by which products and services may be differentiated.
“A better solution would be to provide a level playing field between the worlds of funds and model portfolios, recognising that the risks and rewards associated with such products and services have a high degree of overlap. This would require a significant raising of standards and transparency for model portfolio disclosures which we would support.”