The regulator published the terms of reference for its study into the platform market on Monday, setting out details of the topics it will be pursuing.
The purpose of the survey is to check the general health of the marketplace and to provide evidence of its contribution to good client outcomes by looking into how they benefit from advisers’ choices.
Set to be at the forefront of the investigation are the interactions occurring between platforms, advisers, asset managers and fund ratings, and whether these work in the investors’ interests.
The FCA will also look at how platforms compete in practice and whether they use their bargaining power to get investors a good deal.
“As these investment solutions are likely to form a core part of a firm’s offer to retail investors and financial advisers, we will analyse the extent to which these solutions offer investors value for money," the FCA said.
Members of the fee-based advisers' community have welcomed the regulator's move.
“Current pricing levels are too high for what is being delivered to the customer,” said Anthony Morrow, chief executive and co-founder of online advice service evestor.co.uk.
"Whilst 'value for money' is subjective, fees in excess of 1% per annum simply shouldn’t be necessary. Good advice can come at a fraction of the costs that are currently being landed on investors – and economies of scale and competition between platforms should be driving further price benefits”, Morrow added.
“The FCA has set a very broad scope for this study,” noted Tom McPhail, head of policy at Hargreaves Lansdown.
“The terms of what constitutes a platform can include online portals, life insurance companies, wealth managers and banks; in effect, any organisation providing a retail investment service is likely to come under scrutiny”, McPhail added.
The regulator’s deadline for feedback is 8 September, with the FCA aiming to publish an interim findings report into the platform market by summer 2018.
The report “will set out preliminary conclusions including, where practicable and appropriate, possible remedies to address any concerns identified”, the terms of reference paper said.
Mark Sanderson, director of pensions at Praemium, told International Adviser: "We believe that regulatory scrutiny of the retail platform market at this time is a positive thing for the industry
"The review will sharpen the focus of platform operators to ensure that the service provided assists investors in understanding the investments that they hold."
Should the FCA find that competition is not working well, the regulator “may intervene to promote more effective competition”, it said.
“We can do this in a number of ways, including rulemaking, publishing general guidance, proposing enhanced industry self-regulation or introducing firm-specific remedies or enforcement action."
However, the FCA also noted that it might decide to take no further action. “This could be because any concerns we identify are likely to be addressed by upcoming legislative measures or action by the relevant firms," it said.
A booming market
Investment platforms are increasingly used by consumers and financial advisers to access retail investment products and to manage investments.
According to FCA figures, the platform market has steadily grown over the last eight years, with assets under administration for both adviser and direct platforms increasing from £108bn in 2008 to £500bn in 2016.
The FCA’s market inquiry follows on from the asset management market final report, published last month, which highlighted some potential competition issues in the platforms sector.
“With the increasing use of platforms, and the issues raised by our previous work, we want to assess whether competition between platforms is working in the interest of consumers," said Christopher Woolard, executive director of strategy and competition at the FCA.
"Platforms have the potential to generate significant benefits for consumers and we want to ensure consumers are receiving these benefits in practice," Woolard added.
“An FCA review of platforms, particularly those provided by networks and consolidators, is understandable as the charging often seems very high”, said Michael Fordham, managing director at Platform One.
“This is particularly the case for those networks and consolidator platforms where the service is actually provided by another platform. Often the charges are higher than those from the platform provider underlying the service and yet there is little added value”.