The Financial Conduct Authority has singled out fund discounts as it fires a warning shot at platforms over managing conflicts of interest in their best buy lists.
In a Dear CEO letter sent out on Thursday, FCA director of supervision for life insurance and financial advice Debbie Gupta said buy lists must construct buy lists impartially. It criticised platforms with a “preference for funds offering discounts over formal and objective criteria, lack of independence of research teams and associated governance”.
Hargreaves Lansdown famously uses its Wealth 50 buy list to negotiate fund fee discounts and Neil Woodford slashed his fees by a third for clients using the D2C platform.
Gupta said conflicts that were not managed could lead to investors receiving unsuitable products and services and/or poor value for money.
Woodford highlights the importance of monitoring funds
She added that processes for selection, monitoring and deselection of funds on lists should be “documented, understood and followed”.
Altus senior consultant Rory Gravatt said that was “spot on”.
Gravatt said: “When fund flows are surging to a particular fund or funds it becomes very challenging to miss out on the commercial opportunity because your criteria says no. Yet stand the line you must.”
The Woodford suspension highlighted how important the monitoring piece in particular is, he said.
“Woodford did show signs to those with the right monitoring processes, and would have failed others’ waiting period criteria, but for those who fell foul it is demonstrating that processes have adapted to handle such problems that is important.”
SMCR, Brexit and the platform market study
Beyond buy lists, the FCA letter touched on letters ranging from SMCR to Brexit.
On SMCR, which it noted had been extended to solo-regulated firms on 9 December, it highlighted that accountability for outsourced functions sit within the platform business.
On Brexit, the FCA reminded platforms that they need to understand how the end of the implementation period on 1 January 2021 would affect customers and action needed to be taken.
Additionally, the FCA highlighted the final investment platforms market study report published in March 2019. In particular, it highlighted platforms’ responsibilities on transfers, best execution and Mifidi II charges disclosure.
