The paper, published by the FCA as part of its review of the asset management industry, analysed non-public data for three D2C platforms between 2006 and 2015. Together the platforms share more than 50% of assets under administration of all UK platforms.
It found ‘affiliated funds’ – such as a platform’s own brands – are “significantly more likely to be added to the recommendation list than non-affiliated funds” and “less likely to be deleted from these lists than non-affiliated funds”.
The long-term percentage of recommended affiliated funds is on average 3.8 times larger than the percentage of recommended non-affiliated funds, the FCA said.
According to the paper, the tendency to recommend affiliated funds has increased since regulatory changes were introduced by the FCA in 2014 which prohibit commission sharing with funds.
The paper also found that recommended funds share a higher proportion of their revenues with the platforms than non-recommended funds.
And it showed that platform recommendations have a “substantial impact on flows”.
It said: “Every year following the addition of a fund to a platform’s recommendation list and while still recommended, that fund experiences an average inflow of £5.9m, equating to 1% of the total assets under management of the fund.”
Elsewhere, the analysis found that on average recommended funds exhibited significantly better past performance than non-recommended funds on the same platform.
Hargreaves Lansdown was one of the providers that supplied investment research data to the FCA during the course of its asset management study.
In a statement, the firm noted that it does not have any affiliated funds on its own recommended list.
Mark Dampier, head of investment research at Hargreaves Lansdown, said: “Not all batteries, washing up liquids or fund managers perform the same, and likewise some best-buy lists are better than others.
“Our fund selection process for the Wealth 150 is based on tens of thousands of hours of research every year and on hundreds of face-to-face interviews with fund managers.
“Our research has demonstrably added value for our clients, but there are no short-cuts here – fund selection requires significant expertise and resources.”