Financial Conduct Authority raises concerns about investment sales, but is it taking on too much?

As the mess the Government is making of Brexit gets worse, can the watchdog handle everything on its plate?

City watchdog is taking aim at investment firms (Reuters)

If you save through a pension, or an ISA, the chances are you’re paying too much.

Fortunately, the Financial Conduct Authority has worked that out.

The city watchdog has already frightened the life out of money managers by proposing measures to clip their wings. Now it’s after the companies that distribute their pricey products for them. No one could accuse it of resting on its laurels.

“Investment platforms” have become an enormously important part of the savings industry in recent years, and in many ways they’re a positive development.

They provide a handy way for people to access a huge range of investment products from a huge range of money managers. They also help savers manage their investments by facilitating their moving money between them.

They offer a host of often useful expert information about how and where to invest, the risks and benefits of different asset classes, the approach taken towards them by different funds.

Don’t want to spend your entire life on investment research? In that case, you can always follow one of the model portfolios selected by their experts.

For these reasons, and more, fund platforms have boomed. They had £108bn under administration in 2008. That had increased to £592bn by 2016, and it continues to grow.

Throw in £100bn from firms offering broadly similar services, and fund platforms have collared 78 per cent of the retail investment markets.

They therefore have real power. But is it being used well?

Therein lies the question, and it might end up being a thorny one.

The relationships between money managers, financial advisors and fund platforms is, for example, increasingly cosy.

That could easily lead to a situation where a platform prioritises its relationship with a business partner over its customers. If fund manager X is paying you a lot of money, you might feel inclined to make it a part of one of your model portfolios even if its prices and performance don’t merit that. And that's just one of the potential conflicts that arises.

Those conflicts are rife in financial services. They are not always managed well, if at all, which is one reason for the lack of trust people have in the industry.

Of course, there are also benefits to be had through the relationships between fund platforms and managers. Special and exclusive offers can be made available by the platform, for example.

But are their services worthwhile when set against the admin fees that platforms charge as a percentage of their clients’ investments? And how effective is the competition between them?

Are fund platforms just like the fund managers they serve in charging too much rent to the consumer?

These are all questions that need answering, and for that reason the FCA’s decision to embark on a probe is very welcome.

The only issue raised by it is this: The watchdog is taking an awful lot of work on for itself at the moment. With the car crash of Brexit looming over everything, and looking nastier the worse the performance of the Government’s Brexiteer buffoons gets, is it realistically going to be able to cope with everything on its plate?

We’d better hope so.