The Financial Conduct Authority(FCA) has today unveiled the key areas of focus for its Investment Platforms Market Study, with an interim report due by summer 2018.
In its Investment Platforms Market Study Terms of Reference (MS17/1.1), the FCA said the platform market, which has grown from £108bn in 2008 to £500bn in 2016, was becoming "increasingly vertically integrated", with commercial relationships existing between platforms, asset managers, discretionary investment managers and financial advisers.
It noted: "These relationships have the potential to distort competition by encouraging platforms to compete in the interests of those with which they have commercial relationships rather than in the interests of the consumer.
"Through the market study we will assess what impact these relationships are having on competition and whether they are working in the interests of investors."
For the purposes of the study, the FCA said it was defining 'platforms' broadly, taking in both investment platforms and firms that provide similar services by allowing investors or their advisers to access retail investment products through an online portal.
Noting platforms form "one part of the value chain, alongside asset managers, other product providers and financial advisers, the regulator added: "We will seek to understand whether other parts of the value chain affect the willingness and ability of platforms to compete in the interests of consumers."
It said its analysis would cover:
• Platforms and other firms that offer access to retail investment products through an online portal, which was "likely to include" financial advisers, wealth managers and other distributors;
• Retail investors who access retail investment products through an online portal;
• Intermediaries, including financial advisers and wealth managers who use intermediated platforms to access different retail investment providers on behalf of their clients;
• Product and wrapper providers who use platforms to distribute their products;
• Technology providers to whom platforms outsource services; and
• Fund ratings and data providers whose information platforms use and distribute. This includes understanding what impact third party research providers' business models have on platforms' ability to construct tools which help consumers and financial advisers choose investment products that meet investors' needs.
FCA executive director of strategy and competition Christopher Woolard said: "With the increasing use of platforms, and the issues raised by our previous work, we want to assess whether competition between platforms is working in the interest of consumers.
"Platforms have the potential to generate significant benefits for consumers and we want to ensure consumers are receiving these benefits in practice."
The FCA said it would also explore whether platforms help investors make good investment decisions and whether their investment solutions offer value for money, including closer examination of model portfolios. This work will explore how the model portfolios designed by platforms are constructed, explained to investors and whether they perform as investors expect.
"In principle, platforms allow retail investors to pool their money and achieve better investment returns," it said.
"The FCA will look at how platforms compete in practice and whether they use their bargaining power to get investors a good deal.
"To provide investors access to retail investment products and information about these products, platforms interact with other platforms, advisers, asset managers and fund ratings providers. The FCA will assess whether these relationships work in the interests of investors."
Key areas to be covered by the study to assess "competitive outcomes" include:
- Barriers to entry and expansion
- Commercial relationships
- Business models and platform profitability
- The impact of advisers
- Customer preferences and behaviour
The Investment Platforms Market Study follows on from the regulator's Asset Management Market Study Final Report published last month, which highlighted a number of potential competition issues in the platforms sector.
While there will be no formal consultation process, the FCA said it welcomed feedback on the topics it proposed to explore and asked that any views be sent to [email protected] by 8 September 2017.
It said it aimed to publish an interim report by summer 2018, which would set out preliminary conclusions and any potential remedies to address concerns.
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