FCA warns advisers over platform add-ons and 'orphan clients'

The FCA's latest study says: “We found that some advisers use services including the provision of some adviser education and training courses, white labelling, and bulk rebalancing and model portfolio management tools. Some of these services are likely to be so-called non-monetary benefits, so they likely to be caught by our inducement rules.

“Advisers need to demonstrate that these benefits are acceptable minor non-monetary benefits, for example because they can enhance the quality of the service to the client and will not impair the firm’s compliance with its duty to act in the client’s best interests.”

The FCA’s interim findings also revealed 'price discrimination' concerns around orphan clients - customers who were previously advised but no longer have any relationship with a financial adviser.

The FCA is considering new rules which would require platforms inform the FCA of orphan clients who are still paying for advice they no longer receive and move them to a more appropriate proposition.

The regulator said that "orphan clients have limited ability to access and alter their investments on an adviser platform so are effectively paying for functionality that they cannot use".

Other concerns raised in the study include "significant" barriers to switching which could limit the pressure on platforms to provide continued value for money.

The FCA also found that it is difficult for consumers to choose a D2C platform on the basis of price and that those who want to don’t always succeed in finding cheaper platforms.

Christopher Woolard, executive director of strategy and competition at the FCA, said: “This is a market that has seen significant growth in the past five years with more customers than ever deciding to use a platform to manage their money. We know that competition is working well for many but it is important that the problems we have identified are addressed so that consumers don’t lose out.

“We have outlined a package of measures today to address the issues we have found, but we also want to see the industry step up, making it easier for consumers to transfer from one platform to another.”