The FCA's investment platform costs and charges review May 22

May 11, 2022 12:00:00 AM

What has happened?

In the Final Report for its Investment Platforms Market Study, issued in March 2019 and available here, the FCA stated that it would keep under review the role of platforms in helping consumers understand their investment costs. This was necessary because, as the FCA commented in the Market Study;

there are unnecessary structural pricing complexities as well as inconsistency in terminology and disclosure of costs and charges information. This makes it difficult for consumers to shop around.

and

for consumers to be able to find the platform with the charging structure that best reflects their needs, prices need to be clear, transparent and easily understood. There is an opportunity for the industry to review the number of charges and the terms used for similar charges and to consolidate and standardise some of them to support greater consumer understanding and decision-making.

In May 2022 the FCA disclosed the findings from its follow-up review of charging practices. The findings are available here.

What are the key points of the FCA charging review?

The FCA believes that consumers should be able to easily identify and understand their investment charges so they can choose the right investment channel and products for them. In its review, it focused on the experience of non-advised consumers, examining how easy it is for them to access charging information and whether the information available helps these consumers to understand what they pay.

The FCA could generally identify and compare the main platform charges and fund charges were signposted. However, activity-based charges, such as telephone trade costs and foreign exchange were sometimes harder to locate.

In this context, the regulator’s 2020 Financial Lives Survey had identified that:

56% of consumers in the survey said they found it easy to find the total cost of investing on their platform and 14% said it was fairly or very difficult, and
Around half (51%) said they found it easy to compare the total costs of investing between platforms, and around a quarter (28%) said they found it fairly or very difficult.

Good practice identified among the platforms reviewed included:

single comprehensive lists of all fees and charges applicable,
interactive tools, infographics, calculators and worked examples,
simple and clear explanations of charges – for example, via information buttons when hovering over terms or phrases used,
platforms stating whether any exit fees apply or not, and
platforms using the UK Platform Group’s leaflet to help explain charges.

One way of helping consumers is to clearly state that, if there are fees which are not listed, then that means they do not apply. An example from another sector is the widely used, industry agreed template for a ‘tariff of mortgage charges’ – this includes a statement: ‘When looking at the fees that other firms charge, you may notice that some don’t appear in our tariff (below). This means we don’t charge you for these fees.’

Poor practice was mainly related to:

a lack of a succinct comprehensive list of charges being clearly signposted,
information being spread out across different web pages,
too many links to different sections and pages, and
omission of a clear statement of the interest applying to any cash held or the information being ‘hidden away’ in legalistically worded terms and conditions

Platforms should also be aware of the FCA’s previous compliance reviews in this area, from February 2019 and February 2021. These highlighted some failings in relation to cost information shown in marketing documents not matching the information in regulatory documents, and some firms using assumptions which make costs look as low as possible.

The FCA explains in summary that platforms need to provide both existing and potential clients with:

all costs and charges – are clearly explained,
total prices/aggregated costs – expressed both as a cash amount and as a percentage – with a breakdown available, and
illustrations showing the effect of costs on returns

This information needs to be provided in good time before the provision of the investment business. Platforms need to consider how they satisfy this timing requirement in an online environment, where transactions are typically concluded in a short timeframe. They may need to provide all the information in a manner which is immediately available, such as publication on websites, to ensure they meet the information needs of potential clients.

Platforms should also be aware of the FCA’s forthcoming Consumer Duty. Whilst the final rules will not apply until July 2022, there are proposals which firms should be aware of, such as the proposal that they should test communications, where appropriate, to make sure they support consumer understanding in practice.

The FCA has stated that it will also be carrying out a review of industry progress in improving the switching process, in relation to which the Market Study Final Report had commented that;

Consumers can find it difficult to switch due to the time, complexity and cost involved – driven in part by exit charges and difficulties switching between unit classes.
and

We will carry out a review of progress in 2022 and will consider taking forward further action if consumers’ experience of the switching process does not continue to improve. In 2022 we expect to be able to see the impact of the implementation of the standards on the switching progress for consumers. By this time, we also expect to see the outcome and any impact in the market from the new rules published today and the outcome of our policy work to restrict exit fees.

Subsequently, the FCA’s forthcoming Consumer Duty was described as the “most critical piece of regulation” to impact the platform sector since the Retail Distribution Review in 2013 by a white paper published in May 2022 by the business consultancy firm Altus. The white paper, entitled Platforms: who’s leading the charge? states that regulation is one of the key drivers of change in the platform sector. It singles out the Consumer Duty as the primary accelerator for further change in how platforms operate and deliver services.

How can we help you?

If you’d like to know more about how we can help you with your platform charges disclosures, Consumer Duty preparations, switching arrangements or any other regulatory compliance issues, our specialist team is here to help.

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