The report, by Andrew Hagger of MoneyComms, showed that annual charges on such platforms can vary by as much as three times and it exposed a lack of rigour in matching investors risk tolerances with their investments. For example, while some platforms do meet excellent standards, the majority (14 out of 21 platforms) do not display risk levels as part of their portfolio analysis tools and nine out of 21 platforms do not offer model portfolios.
Stuart Dyer, CIO of online investment platform Rplan, said:
“One of the first tasks that any professional financial adviser would fulfil with a new client is to assess their attitude to risk. The fact that so many investors are using platforms where this is not established is extremely worrying: many self-directed investors could be taking risks with their hard earned savings to which they are largely or completely impervious.
“It would seem that the variations in charges and service levels are a result of the opacity with which investors are faced. Tighter regulation would most likely force many existing platforms to either improve their propositions or leave the sector. In the absence of such tighter regulation, we would like to call upon our peers in subscribing to a Charter of Best Practice and perhaps regain sight of what platforms should be giving to self-directed investors.”
Research by Rplan showed around half (49%) of UK adults have invested at least some of their assets via online fund platforms.
One in three (33%) adults say they have between 10% and 100% invested via platforms, including both those for self-directed investors and financial advisers. Two in five (40%) of investors expect to increase the percentage of their portfolios invested by platforms. Despite the disparity in service levels, investors say they are happy with the tools available on platforms, with 35% of those invested in them saying they are ‘good’ and another 6% say ‘excellent’. Only 5% say it is ‘poor’ or ‘very poor’.
Rplan has written to Megan Butler, Director of Supervision at the Financial Conduct Authority, to draw attention to the wide disparity in service levels and charges among platforms for self-directed investors.
Its charter proposes that the main objective of an investment platform should be to help clients build robust portfolios and not to maximise product sales. Key points include:
- All charges, including service and investment charges, should be as transparent as possible
- Essential information, including the risks and costs, should be readily available
- The level of risk associated with specific investments within a portfolio should be clearly displayed
- Investors should be given the ability to buy, switch and sell investments online
- Jargon should be avoided and the terminology used should be as simple as possible
- No payments should be accepted from investment providers to promote specific investments
- The process of building a portfolio should be as straightforward as possible
