Competitive advantage?

One of the lesser known responsibilities of the FCA is to ensure that the UK financial services market operates in a competitive market. That is why the regulator has a Competition Division, headed up by Mary Starks, Director of Competition. Here are some statements she has made that indicate one of the current areas of focus in her Division.

“Competition is really important for making markets work well. Competition is a process of rivalry whereby suppliers compete to meet customer needs. This process drives costs and prices down …” (Video transcript – FCA website)

“Costs and charges matter – and even a small reduction in charges can have a significant impact on the amount of money that consumers will accumulate in their savings pots.” (AIC conference, London, 9 March 2017)

It is pretty obvious that the regulator is concerned to ensure that financial service industry offers good value to consumers and that drives the focus on the charges that consumers pay in the different parts of the investment/advice chain.

This focus on costs for consumers was highlighted in the Asset Management Market Study – Interim Report published by the Competition Division in November 2016. The report drew two main conclusions …

• there is insufficient price competition in the asset management sector;
• actively managed funds do not outperform passive funds on a cost adjusted basis.

Unsurprisingly, these conclusions led to lots of outraged responses from the asset management sector. However, the FCA’s findings were based on a significant amount of independent research and data. What’s more, the findings have been confirmed subsequently by a research team at Oxford University.

Adviser fees

As the title implies, the report was largely concerned with the Asset Management sector. However, careful readers would have spotted a couple of indications of implications for financial advisers.

“We also have concerns about the value provided by platforms and advisers and are proposing further FCA work in this area.”

“We also propose further FCA work on the retail distribution of funds, particularly on the impact that financial advisers and platforms have on value for money.”

Any thoughts that this might have been a throwaway line were dispelled by comments made by Mary Starks in a speech to the Citywire Asset Management Compliance and Risk Conference in March 2017. Her comments clearly indicated that the FCA will be looking into advice fees.

She said: “Our feeling is advisers have only just emerged from the Financial Advice Market Review (FAMR), so now might not be the time to launch a full-scale onslaught there, but those questions are important and we will have to get to them in time.”