FCA warns advisers over platform inducements

By Justin Cash

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Jul 19, 2018

The FCA has warned financial planners that additional services offered by their platform may be in breach of its inducement rules.

While the regulator has said that competition between platforms is working well for most consumers in its market study this morning, it has warned that add-ons for advisers that are paid for by the client through platform charges may not actually benefit the end user, and could constitute an inducement to adviser business.

The study reads: “We found that some advisers use services including the provision of some adviser education and training courses, white labelling, and bulk rebalancing and model portfolio management tools, which are likely to benefit advisers but not necessarily their clients. Some of these services are likely to be so-called non-monetary benefits, so they likely to be caught by our inducement rules.

“Advisers need to demonstrate that these benefits are acceptable minor non-monetary benefits, for example because they can enhance the quality of the service to the client and will not impair the firm’s compliance with its duty to act in the client’s best interests.”

Mifid II, introduced in January, formalises tighter rules on what goods and services advisers can receive from product providers, confirming that these should be limited to “minor” non-monetary benefits only.

The FCA is also considering action to prevent consumers who were previously advised but no longer are, so called orphan clients, from being overcharged for services they no longer use.

The regulator estimates that between 400,000 orphan clients, this group still holds more than £10bn of assets on platform, and around 10,000 of these are paying additional charges adding £1.2m in costs a year.

It is considering a number of measures to address this, including “requiring platforms to have a process in place to get these customers to switch to a
more appropriate proposition” and “requiring adviser platforms to check, if there is no activity after a year, that their customers are receiving an advice service, and inform the FCA of orphan clients who are still paying an adviser for advice they no longer receive”.

The paper reads: “Orphan clients have limited ability to access and alter their investments on an adviser platform so are paying for functionality that they cannot use. While many platforms told us that they encourage orphan clients to find a new adviser or switch to a direct to consumer platform, some platforms also charge orphan clients extra fees, of up to 0.5 per cent on top of their pre-existing platform charges.”

The FCA is also going to conduct further work after finding that the risk and expected returns from model portfolios held on platform are unclear and vary considerably between the same risk rating.

Lang Cat consulting director Mike Barrett says: “The question of non-compliance with Mifid inducement rules for adviser benefits such as education, training and white-labelling could be very tricky to unbundle from the platform charge if required. The concerns raised for model portfolios and commercial relationships between platforms and asset managers are equally complex. Whilst the platforms themselves might be breathing a sigh of relief, advisers and asset managers are perhaps feeling that the spotlight has been turned onto them.”

FCA director of strategy and competition Christopher Woolard says: “[The platform] market that has seen significant growth in the past five years with more customers than ever deciding to use a platform to manage their money.  We know that competition is working well for many but it is important that the problems we have identified are addressed so that consumers don’t lose out.”

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Money Marketing

Money Marketing, Centaur

The leading magazine and website for IFAs and professional financial advisers. Pensions, investment, mortgages, protection, platforms and regulation news.


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John 6 months ago

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John 6 months ago