The FCA is to shine a spotlight on how platforms are influenced by their commercial relationships.

As part of its review of the sector, the regulator will assess the impact that commercial relationships have on consumers.

The FCA said that platform relationships “may not work in the interests of consumers”.

The study will consider these questions:

Are platforms and similar firms able and willing to negotiate a competitive price on investment charges?

Do commercial relationships drive investment choices and what are the implications for investors?

How do platforms select which product wrapper to include on the platform?

Competition may be working effectively if platforms use their relationships to compete on the size of the discount they offer, the quality of the products they list and the effectiveness of the tools they provide to help enable consumers and advisers to make decisions, the FCA said.

If platforms are not able or willing to use their position in the market to obtain a better deal the regulator said it will explore the reasons why. 

Announcing the terms of reference for the study this morning, the FCA said: “Platforms have to interact with a range of different firms in order to deliver services to their customers. In order to provide access to funds and investment products, platforms have to interact with asset managers and third party wrapper providers.

“In order to decide which funds and products to list on the platform and to help investors make informed choices, platforms interact with firms specialising in research into investment funds.

“We want to understand the extent to which platforms can influence and are influenced by their commercial relationships and the impact these relationships have on consumer outcomes. Our assessment will include relationships, which exist where the platform is part of the same group as another firm in the value chain. We will also look at relationships between platforms and third party product and wrapper providers.”

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The FCA also said it would:

• assess the ability of platforms to negotiate on upstream investment charges by comparing how different funds are priced on different platforms and other distribution channels.
  This will take into account the cost of the platform and the overall investment cost relative to other distribution channels.
• assess the commercial relationships that exist between advisers, product providers and platforms, the impact on the flow of funds and outcomes for consumers.
• assess how reliant platforms are on third party rating agencies and how conflicts of interest are addressed.
• Examine how often product wrapper providers are reviewed and the extent to which any commercial relationships play a factor in the choice.
• explore the impact of the relationship between advisers and platforms.