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FCA hits out at ‘spurious complexity’ in platform charges

FCA competition director Mary Starks

FCA director of competition Mary Starks has described instances of “spurious complexity” in platform charging in the wake of the regulator’s review of the market this morning.

Speaking to Money Marketing, Starks notes findings that, particularly on the direct to consumer side, platforms can levy between 15 and 35 different fees in total, and use inconsistent language to describe platform, wrapper, dealing fees and other charges.

The FCA’s study reveals that nearly a third of consumers are either unaware of their platform charges or believe there are none.

The regulator concluded it had “not found a convincing explanation for the level of complexity and the lack of transparency”, noting that “some of the practices…observed are consistent with the way firms would behave if they wanted to strategically increase complexity”.

Starks tells Money Marketing: “The areas where we see what I would call spurious complexity are around some of the charging structures. The platform market is very varied and serves a very wide range of customers with different needs. Some are using them to trade themselves, using it a lot, placing a great number of trades [on the platform] very frequently, while others just want to take high level direction about risk appetite and not worry about it again.

“It’s fair to have different charging structures for different groups, but probably the complexity has gone beyond what you would need to do that work.”

Starks likened the situation to mobile phone packages, where customers can pay for different usage and service levels, but that there should still be clarity over what the price is.

She says the FCA has not made a final decision on whether auxiliary services offered by platforms, included education and training courses, white labelling, bulk rebalancing and model portfolio management tools, could constitute a breach of inducement rules after saying it would consider this in the review.

Starks adds: “We haven’t made any firm conclusion on the action we will take in the end. We are at the moment in the process where we show our evidence and thinking to kick off the discussion.

“The funds come directly out of the client account. Does that seem right? Should this be something a client is paying for, or is this something that benefits the adviser and really the adviser should be paying for it in the first instance? We are interested to take views on these services.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. It feels that we go round and round in circles.

    Charges are being ever more unbundled whilst becoming more transparent but now there’s talk of rebundling in some aspects and criticisms that costs are complicated.

    It a platform bundles it’s fees, it can be criticised for charging more for those who want a more simple solution.

    For those platforms which unbundle, they can be criticised for having (e.g.) exit charges, switch charges, drawdown fees etc etc.

    Surely having both options leaves the investor able to decide what’s best. Large pot, no complicated needs, go for unbundled fees. Small pot, lots of admin points, go for bundled.

    Specifically, why should investors who are not engaged in more complicated administrative needs be subsidising the costs of those who are?

    Finally, with regard to the clients not paying for the means to invest their funds – I really scratch my head with this. Adviser simplicity (lets assume platforms actually simplify things!) is the same side of the coin as client costs.

    If the adviser faces more complications and costs, the client will be asked to pay them. Likes wise, if there are efficiencies, this should see the cost of advice reduce.

    If the client understands the TOTAL COST TO INVEST surely that’s the bottom line. Let the ‘market’ decide how to build the supply chain and the associated costs and let the adviser decide the most appropriate approach for any given client?

  2. Julian Stevens 16th July 2018 at 4:12 pm

    Within reason, clients don’t care about costs or, if they do, very few remain fixated on them for any length of time. And the more disclosure of costs is thrown at the them, the quicker their interest wanes.

    Does the FCA genuinely believe that there are consumers who blithely assume that there are no charges whatsoever for using a platform? Who do they think pays for it?

  3. Nicholas Pleasure 16th July 2018 at 4:34 pm

    Almost without fail, my clients just want to know the total cost (those that are even concerned).

    They don’t care who gets what, just like I don’t care how much of my BA ticket is down to fuel, or paying the cabin crew.

    Unbundling has given the regulator something to pick away at but it certainly hasn’t been demanded by clients who are simply not interested.

    Finally, why do platforms produce illustrations that are now so woeful you would never invest if you believed them.

  4. Elsewhere in the report the regulator criticises platforms where clients are paying higher charges for functionality they do not use!
    Honestly, you couldn’t make this up!

  5. Advisers should pay for the tools they use to do their job. Clients should only pay for advice.

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