How planning a wedding compares to the FCA Interim Platform Report

Well, it doesn't actually. Sorry. It's just that yours truly is writing this article on his last day at work, three days before getting married. As a result of the FCA paper landing in the same week, my head is a cold soup of the two. Hydrangea colours mixed with model portfolio risk bandings. Catering quantities coupled with platform switching issues. It's a dizzying mix.

This consumer research highlights just how (understandably) different the advised and non-advised segments are. Which begs the question as to why the FCA has lumped two completely different markets together in one paper?

It's funny though, despite me writing this in the present tense, by the time you read this the wedding will be over, and everyone and his dog will have had their say on the platform study. Writing something for publication is a curious form of time travel in that respect.

In many ways, for reasons I'll get onto in a moment, I wish the FCA had the same level of awareness when compiling its latest tome. In mid-July last year, chances are if you work in platforms that you were having a good read of the FCA's Investment Platforms Market Study Terms of Reference paper.

Fast forward 12 months (Great Scott!) and here we go again. This time, it's the Interim Report, together with eight annex documents totalling a sturdy 400 pages of output if you can't resist totalling these kind of things up. Yet, despite the weight of work that's gone into it, I'm left frustrated by several aspects.

What was the question again?

Last year's terms of reference posed two headline questions covering the topics to be explored. Firstly, "How do platforms and similar firms compete on the price and quality of the services and products they offer and the products over which they have influence?" And secondly, "Do platform and similar firms' investment solutions offer investors value for money?". Sadly, neither of these questions comes close to being answered in the interim report.

Can everyone please board via platform one?

One of the real positives of this exercise is the depth of customer research that accompanied the project. The research, led by NMG, surveyed approximately 3,000 end-customers (you know, those awkward people who fund our industry) on their views of platform usage, and serves as a pertinent reminder of some of the real issues facing customers.

This consumer research highlights just how (understandably) different the advised and non-advised segments are. Which begs the question as to why the FCA has lumped two completely different markets together in one paper?

For example, asking advised clients their main reasons for using an online investment platform alongside non-advised clients is jarring when surely Les Dennis' top answer is "Because my adviser told me to". We feel that a more structured, differentiated approach to the two markets for the next wave of the project would be of real benefit.

Secondly, there is no real effort to offer an issues-based segmentation of the individual platforms within the market. You're either 'a platform' or you're not. When, as I've covered in previous articles, these beasts are far from the same. The issues facing an adviser who 'owns' their tech proposition off-platform and uses, say, a Transact or a Nucleus or an Ascentric are fundamentally different to the business models of, say, Intrinsic users on Old Mutual Wealth. Which leads me onto…

Where is the vertically integrated market? Behind the sofa?

When your initial terms of reference have such a clear focus on value for money and the influence of price and quality on client propositions, then to pay little more than lip service to vertically integrated propositions (where there have been significant questions raised over the value for money of some of the solutions) feels very, very odd to us.

Stop moaning about things that aren't there

Indeed. What we DO have is a study that has concluded that we have five groups of consumers for whom the FCA reckons competition between platforms is not working well:

  1. Those who would benefit from switching but can find it difficult.

The ease with which both advised and non-advised clients can move between platforms touches on lots of important subjects, such as exit fees, share classes and transfer times. Again, we feel the dichotomy of the advised versus D2C markets is a little lost here but progress on transfer times can only be a good thing for the reputation of the industry.

  1. Those who are price sensitive but can find shopping around difficult.

This one is aimed at the direct space, and whilst we would applaud moves to make it easier to shop around, in a world where many direct consumers either don't think they pay platform charges or don't know, perhaps more work is needed on clarity of charges disclosure first.

  1. Those who use model portfolios. The risks and expected returns of model portfolios with similar risk labels are unclear and can lead to confusion about how much risk they are facing.

That consumers, mainly using D2C platforms, using these model portfolios and suggested multi-asset funds may have the wrong idea about the risk/return levels they face also feels like an area in need of improved disclosure and clarity of information, especially when investment performance is a far bigger driver of customer outcomes than saving a few percentage points on a platform charge.

  1. Those who have large cash balances on direct platforms. They may not know they are missing out on investment returns and/or that they are paying charges.

We have mentioned this a number of times – the combination of low interest rates and platform charges means that if you are using a platform to "invest" in cash, you are probably getting net negative returns as a result.

  1. Those who no longer have an adviser and are still on an advised platform but may face higher charges and lower levels of service (referred to as 'orphan clients').

Platforms have always had a TCF obligation here, but it looks like the bar may be raised. The suggested requirement for platforms to check that clients are receiving an advised service is also one to watch.

So, there we have it. Definitely a mixed bag and we await the final recommendations with bated breath. Until then, it's back to the last-minute wedding prep. I might weave some platform analogies into the speech. I reckon that's a winner, don't you? Hello? Are you still there?

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