The Investment Platforms Market Study, launched today by the Financial Conduct Authority (FCA), will examine whether advisers have a positive impact on platform costs and quality.
The regulator has said it plans to complement its analysis of supply-side issues by exploring how the interaction between consumers, their advisers and platforms affects competition. "In doing so," it added, "we will explore the impact financial advisers have on competition between platforms."
According to the FCA, a principal-agent relationship often exists between consumer and adviser in this area because, when consumers receive financial advice, their adviser may also recommend a platform to use or may choose a platform on behalf of their clients.
The study will therefore consider how this relationship affects "the competitive dynamic" between platforms.
"We will explore what factors advisers prioritise when choosing, reviewing and deciding whether to switch platform, and whether platforms consider the end-investor when competing to win business from advisers," the FCA said.
"We will also consider whether advisers pass the benefits of competition between platforms onto investors in the form of lower adviser and platform fees."
Pointing to recent Platforum research that suggested advisers used platforms for more than two-thirds (68% to 69%) of their new business in 2016 - and that advised platforms hold twice as many assets as non-advised platforms in 2016 - the FCA noted consumers pay for both types of platform.
"With advised platforms," it added, however, "the consumer may not directly engage with the platform and may instead pay their adviser, through the adviser charge, to deal with and manage their investments through the platform. This may be because consumers prefer to leave their financial matters to their adviser, or because the platform limits consumers' access to the platform."
In either case, the FCA argued, it was likely an adviser's preferences would be a key determinant in the selection of the platform and the study would therefore explore the impact this has on competition between platforms by exploring the question "Do adviser platforms compete in the interests of the end-investor?"
Alignment of interests
The regulator also expressed concern "consumer harm may arise if the interests and choices of the adviser and investor are not aligned". As such, it intends to assess the factors that determine why advisers choose a platform on behalf of their clients, the access platforms allow consumers, any restrictions they impose and the reasons for these.
"We will also consider the typical use consumers make of advised platforms, which will include how advised platforms deal with consumers who no longer have an adviser," it added.
In addition to affecting the competitive dynamic between platforms, the FCA suggested financial advisers could also determine the extent to which consumers receive "the benefits of competition between platforms" and so another question the study will address is "Do advisers have a positive impact on the cost/quality of the platform and are these benefits passed through to investors?"
"We want 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," the FCA said.
"Considering these factors should enable us to draw conclusions as to the impact adviser firms are having on the platform market, how platforms tailor their offering to advisers and whether this is resulting in effective competition in the interests of consumers."
Barriers to switching
Another focus of the Investment Platforms Market Study, which the former FCA technical specialist Rory Percival highlighted to Professional Adviser last week, is whether or not challenger platforms and similar firms struggle to compete as customers and advisers face barriers to switching, and the potential effects of these on consumer choice.
"In doing so we will take account of initiatives that may improve competition between platforms," the FCA said. "For example, in a recent consultation paper, which we welcomed, several trade bodies from the pensions, insurance and investment industries have called out for providers to take proactive and collective decisions to improve the transfers and re-registrations of investment and pension assets."
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