Financial Watchdog Takes A Bite Out Of Platform Fund Charges

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Financial watchdogs want to beef up competition between online platforms to give consumers a better deal from investing in funds.

The move comes after a study revealed investors are dissatisfied with the poor competitive pricing between platforms.

The Financial Conduct Authority (FCA) said although 39% of consumers they would choose a platform based on price, 29% confessed they did not bother to shop around because they could not discern how much a platform would charge them or if there were any charges.

This leads to price-sensitive consumers failing to identify the platforms with the cheapest charges, argues the FCA.

“It is currently difficult for consumers to choose a D2C platform based on price. It is not easy to find pricing information on platform websites,” said the report.

Complexity and lack of transparency

“Most platforms also have many fees, different pricing structures and different ways of setting prices, for example, in pounds or as a percentage of the investment amount. Inconsistent language makes it even harder to identify and compare similar fees across platforms.

“Different charging structures can in principle reflect different consumer needs and usage patterns. However, the level of complexity appears to go beyond catering for this, and we are concerned by both complexity and the lack of transparency.”

The FCA will also look at deals platforms have struck with fund managers to ensure charges are better or no worse than those managers agree with rival funds.

The cost of model portfolios was also criticised by the report.

“Model portfolio fees vary significantly, with higher fees resulting in lower risk-adjusted net returns on average,” said the FCA.

More risk than expected

“This finding also holds when we considered net returns of unitised portfolios, which tend to have higher average charges, and non-unitised portfolios, which tend to have lower average charges.”

The FCA is consulting on how to address model portfolio users having a higher exposure to risk than they might expect.

Consumers are also losing investment returns from holding too much cash on their platform accounts, warned the FCA.

“We want to see if our existing rules go far enough in achieving our objective of consumers making informed decisions about the interest, charges and potential foregone investment returns on their cash balances,” said the report.

“Unaware they are missing out on investment returns, the interest they lose or the charges they pay by holding cash in this way.”

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