The Investment Platform Market Study: the Aegon view
For adviser use only
It’s been 17 years since investment platforms first emerged on the UK market and today they administer around £600 billion in assets. It’s natural then that the regulator wants to assess whether this dominant and fast-growing means of bringing together advisers, clients, providers and fund managers is working satisfactorily.
To this end, the Financial Conduct Authority (FCA) recently invited responses to its Investment Platforms Market Study Terms of Reference. The study primarily seeks to determine if competition forces mean consumers get good outcomes from investment platforms and that these platforms are delivering value for money for investors. At Aegon, we were keen to put forward our thoughts on what the study needs to consider. Here’s a quick summary of our key thoughts:
1. A joined-up approach is needed to review all parts of the value chain
Platforms are only one part of a value chain that includes advisers, product providers and asset managers. All these elements need to be considered together if value for money is to be assured for investors. In particular, the study needs to explore the profit margins within each part of the chain, how these have changed over time and why.
But the study also needs to be sure what it means by value for money. Customers tend to measure value on the outcome they achieve – and this can ultimately come down to many other factors besides price.
2. Different platform models need to be acknowledged
The FCA will need to acknowledge the different platform business models that exist and how these influence pricing. For example, a platform that looks to channel investors towards a limited number of funds has far stronger negotiating power than an agnostic platform aiming to offer access to the whole fund universe. Equally, pricing negotiation for a direct-to-consumer platform will be very different from an intermediated platform, where advisory firms may look to drive competitive pricing.
3. Allow remedies from the Asset Management Market Study to bed in first
The Investment Platform Market Study was borne out of the FCA’s Asset Management Market Study (AAMS), which similarly sought to understand how asset managers compete to deliver value to retail and institutional investors. Many of the measures to improve value in the asset management market can naturally flow into the platform market.
For example, as part of the AAMS requirements to assess value, we think fund managers should be obliged to demonstrate if the pricing they offer platforms is comparable to that offered to institutional investors with similar levels of client assets. If not, they should justify why.
4. Don’t put platforms at a disadvantage to distribution models
The study will only be doing its job if platform pricing is assessed in comparison to non-platform alternatives. Equally, the FCA needs to be mindful of imposing requirements on platform providers that are not in line with wider regulations.
5. Recognise the adviser’s role in delivering value for money
The role of advisers is to act in the best interest of their clients. They are closest to the end customer, the only party with sight of all costs across the value chain, including their own charges, and therefore best positioned to drive overall value for money. They can also judge where a higher charge is justified by delivering better choice or services, allowing the question of value for money to be more nuanced. Advisers have been a positive force in driving lower charges and improved benefits and propositions from platforms and this needs to be acknowledged by the study. Conversely, it’s important to recognise the role platforms play in helping advisers reduce their overheads, making the provision of advice more efficient.