The FCA says it plans to shake up the £500bn investment platform market to boost competition after concerns about how platforms compete with each other and for customers.

The regulator, which published its interim market study into platforms today, said that broadly “competition is working well for most consumers using investment platforms.” but there were areas of improvement needed.

The FCA found that competition was not “working as well as it should do” for some consumers.

FCA is concerned about consumers:

• who may benefit from switching but find it difficult or costly to do.  The FCA found 7% of all consumers tried to switch but failed to do so. The FCA said  barriers to switching are significant and could limit the pressure on platforms to provide continued value for money

• using direct-to-consumers (D2C) platforms who want to choose on the basis of price. The FCA found that it was difficult for consumers to choose a D2C platform on the basis of price and that those who want to often fail to find cheaper platforms. The FCA found fees were hard to understand and compare

• who use model portfolios. Similar risk labels are applied to very different portfolios and customers may have the wrong idea about the likely risk/returns they face.  The FCA found the information that platforms provide about these model portfolios makes comparison difficult, and similar sounding labels (for example, 'cautious', 'conservative', 'balanced') can expose investors to significantly different underlying assets and volatility in returns

• customers with large cash balances who may not be aware they are missing out on investment returns or on the interest they forego by holding cash this way

• orphan clients, customers who were previously advised but no longer have any relationship with a financial adviser. Orphan clients have limited ability to access and alter their investments on an adviser platform so are effectively paying for functionality that they cannot use. 

The FCA has proposed a package of “remedies” for these five groups of consumers to address its concerns.

These include measures to help strengthen competition between asset managers, measures to make it easier for investors and advisers to switch platforms, tackling price discrimination between orphan and existing clients and measures to alert customers who are holding large cash balances.

The report revealed questions about how platforms compete for particular groups of consumers and the FCA says it is proposing measures to address these problems “before they get bigger.”

The investment platform market is now worth £500bn in assets under management and has almost doubled in size since 2013. During the same period, an extra 2.2 million customer accounts were opened.

More and more consumers and Financial Planners are dependent on platforms, says the FCA, and it is “vital” that competition between platforms works well.

Christopher Woolard, executive director of strategy and competition at the FCA said: "This is a market that has seen significant growth in the past five years with more customers than ever deciding to use a platform to manage their money.   

“We know that competition is working well for many but it is important that the problems we have identified are addressed so that consumers don't lose out.

"We have outlined a package of measures today to address the issues we have found, but we also want to see the industry step up, making it easier for consumers to transfer from one platform to another."

The FCA says it recognises that industry is currently taking steps, including implementation of MiFID II, to help consumers shop around on the basis of price. The FCA also acknowledges that the Transfers and Re-registration Industry Group is currently taking forward an initiative to improve the switching process and reduce transfer times.

Between its interim and final report the FCA says it will assess industry progress before deciding whether to introduce additional remedies. The regulator plans to seek feedback on its initial findings and proposed remedies before publishing its final conclusions in early 2019.