Page 30 - DIY Magazine September 2018

CITY WATCHDOG CHALLENGES DIY INVESTMENT PLATFORMS ON FEES AND TRANSPARENCY
The Financial Conduct Authority (FCA) has proposed a package of measures it believes necessary to tackle a lack of competition writes George Jarrett.
UK investment platforms hold assets worth half-a- billion pounds – double the sum in 2013 – but face a clampdown to increase competition and remove expensive barriers to switching.
Investors locked in by high fees to switch their DIY investing platform are of particular concern; as a result of its survey of 800 advised and non-advised customers, FCA may ban exit fees; 28% of investors said exit fees were stopping them from moving providers, 29% stated the process was too complex, and 38% said it took too long.
FCA said that those ‘who may benefit from switching find it difficult or costly to do so’ adding that ‘significant’ barriers to switching could ‘limit the pressure on platforms to provide continued value for money’.
The report said platforms earn between 0.22% and 0.54% on every pound investors house with them and noted that as investors become more reliant on them to manage their money, increased transparency of charges – and increased competition – was more important than ever
FCA said that while competition is ‘working well for most consumers’, it is concerned about how platforms compete for particular groups of investors; those who want to switch platform, those who use model portfolios or direct-to-consumer platforms, people with large cash balances and ‘orphaned clients’ – those that previously had a financial adviser but no longer do – are all considered to be vulnerable.
The watchdog also wants improved pricing transparency; some DIY investing platforms are fee based, some percentage based and others a hybrid,
INVESTMENT PLATFORMS HOLD ASSETS WORTH HALF- A-BILLION POUNDS – DOUBLE THE SUM IN 2013
so like for like comparison has become increasingly difficult.
It also questioned the risk level descriptions used by ‘model portfolio’ providers following a critical report that concluded automated investment platforms were not conducting thorough enough ‘fact-finds’ and were light on suitability.
Shares in the UK’s biggest DIY investing platform Hargreaves Lansdown fell briefly on the announcement, but its one million customers and £86 billion AUM highlights how the sector has flourished.
FCA has pledged to pressure platforms to drive competition between fund management firms, make it easier for investors and advisers to switch platforms, tackle price discrimination between orphaned and existing clients, and require platforms to alert customers who have large cash balances generating them no returns.
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.’
‘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.’
FCA’s report comes hot on the heels of a survey that predicted the sector is set to experience significant growth in the next five years – ‘DIY Investing platforms set to attract £100bn over the next five years ‘
had already failed
DIY Investor Magazine | Sep 2018 30