FCA may force platforms to move clients not receiving advice to no adviser fee accounts

Written by Oliver Wade
18/07/2018

The Financial Conduct Authority (FCA) has recently revealed that it may force platforms to transfer clients they suspect are no long receiving advice to accounts that do not pay an ongoing fee to the adviser.

In its 110 page interim report on the state of the platform market, published on Monday 16 July, the FCA found that platforms do not actively monitor whether there has been activity on accounts with ongoing advice charges and revealed it wants fund supermarkets to begin keeping tabs on the situation.

The FCA’s study found over 400,000 “orphaned” accounts on adviser platforms belonging to clients who were no longer receiving advice which could be affected by the issue. According to the report, the FCA may have to introduce new rules in order to address the issue.

The regulator has said that it was considering whether to impose a requirement on platforms to check, if there is no activity after a year, that their customers are receiving an advice service, and also inform the watchdog of orphan clients that are still paying an advisor fee for advice that they are no longer receiving.

The FCA has also stated that platforms could do more to get orphan clients to find a new adviser or switch to a direct-to-consumer platform, but some have warned this could result in fund supermarkets being accused of poaching clients or severing their cash flow.

FCA director of competition Mary Starks said that the regulator would then use this information to decide how to address the problem. Starks also noted that she would not rule out making platforms simply stop charging for advice if they suspect that it is no longer being given.

“There are a number of things we could consider. One end of the spectrum is informing the client (they have been orphaned) and telling them they have other options, through to requiring the firm (platform) to do something about it,” Starks stated.

The director of competition made a point of noting that the authority has not yet made a decision on what direction it wants to go in.

When asked whether she viewed the situation of advisers pocketing cash for a service they are no longer providing as being the fault of the intermediary or the platform, Starks said that the regulator is not looking to play the “blame game”.

Many platform providers were quick to raise concerns about whether the FCA should force them to monitor whether advisers were delivering the ongoing advice service they had initially agreed with the client.

Novia chief executive Bill Vasilieff said: “A platform provider would not be aware of everything that happens between advisers and their clients. It is possible that a recommendation might be a buy and hold strategy and we would not be aware of the advice in this scenario so clarification on 'inactivity' would need to be sought.

“We would not be comfortable monitoring ‘inactivity’ and also we believe that any definition of inactivity would easily be circumvented.”

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