Key points
• On 17 July the FCA set out the scope for its Investment Platforms Market Study.
• A chief consideration is: how do platforms compete on price and quality of their services?
• Any discussion about charging needs to consider the issue of cross subsidies.
Adviser impact
Advisers will be pleased to note they have not been forgotten, and have their own topic to be explored. “The impact of advisers” topic will look at whether advisers have a positive impact on the cost and/or quality of the platform, and whether these benefits are being passed through to the end investor.
The question of who pays, and who benefits from a platform is often offered as an example of where platforms and the industry have perhaps not got things quite right. There are without doubt benefits for advised clients investing via a platform. Clients want safe and concise custody, and an environment where their advisers can manage their investments at the lowest total cost, therefore allowing the adviser to provide the service required.
Client fees
Clients are normally reasonable people, and are fine with their adviser making a profit as well – if you are investing for the long term you want your adviser to be around to support you, so this is perfectly cool. What is perhaps less cool are the adviser-facing benefits that the customer is paying for, or at least subsidising via their platform charge. Platform tools, bulk switching, reporting, adviser seminars and training are all available to advisers from a number of providers. Some, or even most of these will help the adviser improve the service they are offering their clients, but should the client be the only one who pays for these?
Any discussion about a more equitable format of charging also needs to consider the issue of cross subsidies between large and smaller investors. In pure admin terms, platforms cost roughly the same amount irrespective of case size. A small investor could trade and phone for support frequently and a large investor might not.
Most providers are (or certainly should be) able to predict this behaviour and price accordingly. However, for larger cases there are additional costs that need to be factored in. As your assets under management increases, so does your requirement for capital adequacy, and this comes at a cost. Larger firms are more likely to face increased regulatory supervision, increased FCA, Financial Services Compensation Scheme (FSCS) and professional indemnity costs, and larger firms are also taking on more risk.
