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Vertical integration focus in FCA platform study welcomed

Social-Networking-Technology-Organisation-Chart-700x450.jpgPlatforms and advisers have welcomed the FCA’s investigation into competition in the platform market and how vertically integrated businesses and  advisers can impact on fees and charges.

The regulator released the terms of reference for its investment platforms market study this week.

In the terms of reference, the FCA says it wants to “assess the impact advisers have on platform costs and quality, understand whether the benefits advisers secure from their platform are passed onto investors and how use of a platform has affected adviser charges”.

Candid Financial Advice director Justin Modray says there is a role for advisers in shaping the platform market by demanding better service and more reasonable charges.

He says: “The adviser platform sector needs more price competition for larger portfolios, where typical percentage fees become excessive while the marginal cost to platforms is often low. But this won’t happen unless advisers put pressure on platforms, since the FCA seems reticent to police price based on its recent fund review.”

Vertical integration and the commercial relationships between platforms, asset managers, discretionary fund managers and advisers are also a focus of the review,  which the FCA says could “distort competition”.

The regulator highlighted Standard Life, Zurich, AJ Bell, Old Mutual Wealth, Aegon/Cofunds and Fidelity Fundsnetwork as vertically integrated adviser platforms.

Nucleus business development director Barry Neilson says: “Vertical integration should be good news for customers because it should drive down cost and give them access to quality component parts of the investment proposition. [However,] it comes down to whether it has been built for the customer or whether it has been built to provide easier distribution of mediocre components and if it is the latter that does not feel like the right outcome for clients.”

Transact chief executive Ian Taylor adds: “If you think about platforms on a spectrum from pure custody platforms to those which are trying to distribute products then the further you get to that other extreme of the spectrum the more uncomfortable some of the questions might be. It does not necessarily mean their business models are wrong, it just means their business models are different.”

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  1. The one ‘vertically integrated’ firm which many want to see investigated is SJP but once again it escapes since it is not a platform but a life company and these are specifically exempt from many platform rules, like old fashioned unbundled pricing.

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