The FCA’s recent interim report contained a rather damning account of platform transparency, going as far as saying that platforms risk misleading investors if they continue as they are.
The report cited the statistic that 30% of advised clients either did not think they paid for their platform, or were unable to say whether they did or didn’t. Judging from this apparent lack of knowledge, it is the understanding of many investors of the ways their money is invested must be marginal to say the least.
The FCA also found that the platform terminology and language that model portfolio services (MPS) are using to describe risk levels may need to be regulated in the future, after they found widely divergent strategies with the same labels.
All in all, the FCA condemned MPSs for applying common terminology to a broad range of risk levels, resulting in investors having an unclear view of their risk exposure.
In the wake of all this criticism, you may think we should be expecting some kind of FCA crackdown across the board (which we would welcome wholeheartedly), but things are never quite that simple.
The FCA have decided to hold off on any further regulatory measures for the time being because of the not-so-recent introduction of Mifid II in January.
They are going to wait a few more months until investment services have got to grips with the directive to see how this affects transparency in the industry.
One of Mifid II’s main objectives was to inject more transparency across asset classes. Under Mifid II, cost disclosure should better show the cost of the platform than it may previously have done, alongside various other information, such as the quality of individual funds.
After the interim report’s revelations, the FCA’s director of competition, Mary Starks, said: ”We are still at the beginning of seeing how firms are going about complying with Mifid II and how prominent and salient they are making that information to consumers”.
This attitude seems to contradict the rather tough tone the FCA took in June when their Chief Executive, Andrew Bailey, announced they would start to enforce any breaches of Mifid II. Now, the FCA appears to be taking a step back from the aggressive stance on opaque financial services they showed in June.
It is currently unclear how the FCA will react to the clear lack of transparency throughout investment platforms. As it stands, they appear to have forgotten that age-old expression ‘actions speak louder than words’.
One thing is clear from their interim report: many advised clients and unadvised clients on D2C platforms are likely to have a very limited understanding of both their own platform and other platforms out there.