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FCA will not intervene on platform switching despite ‘status quo bias’ concerns

Linda Woodall 700 x 450

The FCA has no plans to intervene in the platform switching space despite experts warning obstacles to transferring clients are increasing “status quo bias”.

The FCA warned this morning that advisers are failing to complete regular due diligence on their platform choices, with some firms showing a strong bias to incumbent firms, rather than alternatives.

While compliance experts suggest this is, in part, due to the challenges of moving clients between platforms, FCA director of life insurance and financial advice Linda Woodall says the regulator has “no explicit objective” to make this process easier.

She says: “In general our expectations of platforms is that they run their business in a way that doesn’t stop people from switching.

“That’s our general expectation, and where we find evidence at an individual organisation level that’s not the case, then clearly we have our normal range of tools that we can deploy. But we are not focusing on a thematic piece or anything of that nature specifically on that point.”

However, Finalytiq founding director Abraham Okusanya says the regulator needs to look at both sides.

He says: “The FCA should be putting more pressure on some firms to get registration between platforms done more quickly.

“That would improve competition in the marketplace and some of those legacy bias issues would be solved.

“If you can move clients at the click of a button that’s a huge amount of administrative burden removed from advisers. No more chasing platforms over registration, making sure money has transferred or dealing with other errors that might arise.

“Transferring clients is a can of worms. But the FCA is approaching this from the view of that advisers’ responsibility. They need to look at the other side too.”

Okusanya says even the initial steps to transfer clients between platforms can be costly.

He says: “We estimate that it costs something like £500 just to start moving an individual client and when you add in the adviser face time and the administrative requirements, that’s even more.

“You need to get the data from platform A, write a client report explaining the decision, and why the new option is suitable, and then send it out. That takes about three hours of a decent paraplanner’s time and that’s before the report has to be explained as well.

“Some advisers swallow that cost and some pass it on but, for the most part, it gets passed down in one way or another to the client, so the adviser has to justify that.”

Threesixty managing director Phil Young says most advisers conduct due diligence on their platform choices every five years, with products reviewed annually.

He says: “By and large before a client walks in the door you know what they are likely to end up with.

“That means it’s more consistent, but it also breeds a little bit of laziness at times.

“The problem with platforms is that it’s a painful and difficult process to move from one of these things, so there’s a regulatory acceptance that you are not going to be doing it all the time. However, it can become quite entrenched even when there have been service issues because it’s such a pain to move.”

The Lang Cat principal Mark Polson adds he was “struck” by the FCA’s failure to mention the ease of moving platforms, alongside the lack of coverage for special fund deals and tilting towards in-house fund selections.

Polson also notes the FCA’s concern over advisers’ paying more attention to the benefits of platform services to themselves than clients.

He says: “We agree with the broad point, but really clients get their service from the adviser, not the platform. Maybe this will surface the long-held view of some, including us, that platforms should be charging advisers at least part of the cost.

The FCA also says it found firms “retro-fitting” evidence of process, to justify decisions that had already been taken, either on the basis of service to the adviser, or incumbency.

FCA technical specialist Rory Percival says: “It’s papering. We have a concern not just here but more broadly in what advisers do, that sometimes they do work just to have something on record to show the regulator, rather than doing a proper job.”

Woodall agrees: “It’s an example of box ticking and something we’d like advisers to move away from.”

Nonetheless, Woodall maintains the FCA is not making market-wide conclusions from the study, which involved just 13 advice firms.

She says: “We are not seeking to characterise the market holistically. It is a discovery piece where we simply need to identify a sample that is big enough to give us some indicators.

“We are not making market-wide conclusions, we are reflecting the indicators that we have found through that discover work.

“And then clearly we will want to communicate those indicators more widely, and if you like, attempt to move firms on into practices that we think better meet the consumer need.”



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There is one comment at the moment, we would love to hear your opinion too.

  1. So reading between the lines….. what the FCA (Woodall and Percival) as saying; we are not about to start making life easier for you ! Oh and by the way ! don’t forget, you shouldn’t be doing things just to please the regulator, its the client that matters !!

    We (the FCA) fear you may be getting a tad bit complacent (lazy if you will) so a good kick up the arse is needed to bring you to heel, oh and a few press releases saying we have dished out some S166,s should cement our position !

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