Platforms still need to improve ‘re-reg’ and avoid over-charging inactive, non-advised clients, finds FCA Thematic Review of platform providers

8 March 2014

The FCA’s Thematic Review of Platforms finding, which were unveiled this week, reveal that the market is broadly on course for meeting PS13/1 rules on transparent charging within the next month for new business and in two-year’s time, on 6 April 2016, for legacy business. The findings were made public this week by Nick Poyntz-Wright, the FCA’s head of long term savings.

As an exercise in clear ‘customer communications’ it got ten out of ten. The core findings were laid out in a six minute video given by the man himself and supported by a PowerPoint-style presentation; and the overview was very positive:

  1. Platforms are on course to be compliant with PS13/1 by next month’s deadline. This means that the move to clean share class funds for new business, and therefore the banning of cash rebates by fund managers will be complete in a month’s time. This will leave a further two years for platforms to complete this work for existing holdings also.
  2. Project plans are being well run and schedules for completion of changes have been kept up.
  3. The fact that platform charges are falling now they are unbundled indicates that the market is remaining highly competitive so the regulator will not need to intervene to cap charges.

Areas of criticisms were:

  1. Contingency planning is poor – platforms do not appear to have a ‘Plan B’ if thing do go wrong in the movement of customers to new funds.
  2. More work is also needed to thing about supporting ‘orphan’ clients that have their assets on platforms but are not supported by a financial adviser. There is specific concern that these orphan clients should not be charged the same amounts as advised clients, particularly if they are not using all the functionality of the platform.
  3. But perhaps the largest criticism of all is levelled at platforms’ failure to clean up their re-reg act. It is still taking too long to move assets between platforms and the FCA is concerned that a new trend by platforms to charge exit fees may discourage movement of assets and restrict competition in the market. They are watching this with interest and may act to curb this practice if charges increase.

So if platform providers are cruising over the first key compliance fence next month, will they fare as well over the next two years as they set about the gargantuan task of moving much larger amounts of legacy business into shiny new clean asset-classed funds?

Certainly we had some early warning of the scale of this job from the likes of Ascentric’s Hugo Thorman and Nucleus’ David Ferguson commented back last May on their worries that, if automated systems for bulk transfers of assets to clean asset classed funds were not found, the legacy migration process could be beyond their resources. Fortunately there have been developments in these areas and rock solid outsourced services exist for migrating these legacy assets through to new ‘cleaned’ funds have been rolled out and are in wide use by platforms now.

So on paper it all looks like plain sailing for platforms to be fully PS13/1 compliant, in line with the spirit of low-charging transparency fostered by RDR. But will the growing pressure on margins and relentless drive for efficiency also lead naturally to a wave of consolidations anytime soon? And if this happens will the platform market’s current healthy level of competition be threatened?

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