The Financial Conduct Authority (FCA) has warned investment platforms it could name and shame them if the sector does not make it quicker and easier for advisers and consumers to switch platforms.
The regulator said it expected the industry to implement changes by the time it publishes its final platform market study report in the first quarter of 2019 and threatened to take action if it did not make suitable changes to switching before then.
The changes the FCA said it wanted to see included: "End-to end standards for transfer and re-registration (also known as 'in-specie') times through the introduction of a maximum timescale for each step in the switching process, and clear communication to customers provided by the receiving provider at the start of the switching process detailing the transfer process, timelines and giving them a point of contact if they have any questions or wish to complain."
If it does not see changes in these areas, the financial watchdog said it could introduce "so-called 'sunlight remedies', whereby firms or the FCA would collect and publish data on transfer times completed by different parties in the transfer process in order to draw consumers' and third parties' attention to differences in the time it takes for different firms to switch customers."
A more radical approach, it said, would be for the FCA to set minimum standards for transfer times.
Suitability expectations
The FCA also said it was considering whether it should clarify its expectations for advisers who charge clients for switching platforms through guidance. Advisers told the regulator a platform switch was an advice event, which required the production of a suitability report, and so incurred an extra fee for the client - and usually costs more than any potential Savings.
"We recognise it may be reasonable for advisers to charge for services associated with switching platform," the watchdog said. "However, it is not clear to us why meeting suitability requirements to switch platforms should outweigh the benefits of switching."
It added this was "particularly the case" where a firm already offers ongoing suitability assessments and "should therefore already have up-to-date information about the client's circumstances and objectives, and where advisers regularly undertake due diligence on the platform market".
In order to better understand this situation, the FCA said it wanted to hear views on what additional work was required to meet suitability requirements "over and above" the usual ongoing suitability assessment for clients and how this work translated into the level of fees clients are charged for switching.
Switching costs and time
The regulator said 36 advisers offered estimates of switching costs, which it noted ranged from £150 to £1,835 with a median of £700. In terms of time, it said the median adviser and administration time between 22 advisers for switching was six hours, with some quoting as little as two hours and some as much as 15 hours.
It also found: "The majority of advisers switched less than 10% of the investments held and of their clients in each period. Around half switched less than 5%, and a significant minority switched less than 1%. Data supplied by the platforms in our sample show that in 2016, 9% of new customers on adviser platforms had re-registered or transferred in from another platform, while 3% of lost customers re-registered or transferred out to a different platform."
