Ensuring effective competition across financial services markets is a core focus for the FCA, forming one of its three operational objectives and playing an integral role in working towards the remaining two; protecting consumers and safeguarding the integrity of the UK financial markets.
Promoting competition and innovation is also one of the FCA’s cross-sector priorities. While competition can drive better value for money and service, if issues are left to develop unchecked this can have a detrimental impact on customer outcomes and introduce new risks into the financial system.
The FCA’s competition lens is now firmly fixed on the investment management space, with the announcement of its Platforms Market Study at the beginning of the summer, and more recently in its decision to make a Market Investigation Reference (MIR) to the CMA regarding investment consultancy and fiduciary management services. The regulator is seeking to understand how effectively firms are competing on price and quality and the impact this has on consumer outcomes. Where the FCA finds that competition is not working effectively, or that anti-competitive market features exist, the regulator has already shown that it’s not afraid to take action, and with no signs of abating firms should be embracing this ongoing focus on competition.
Competition is mutually beneficial
It’s hard to find a loser in a competitive market. Competition encourages higher service levels, lowers price and drives firms to innovate and deliver positive outcomes for customers.
On the other hand, poor competition can have a negative impact on customers’ ability to shop around in search of value for money, and firms may also be impacted by negative competition forces, such as market concentration or dominance. In its Sector Views publications, the FCA specifically highlighted that poor demand-side pressures may be contributing to weak price competition.
Value for money at its heart
Another recurring concern for the regulator is the issue of value for money. This can be exacerbated by poor competition and, while the FCA has said it’s not a price regulator, the issue has been raised across multiple sectors. The focus on value for money also ties into ensuring the market functions well for all participants.
In a well-functioning market consumers will avoid firms, products and services that they don’t believe represent good value for money. However, where competition is not performing effectively, this can distort the actual and perceived value for money being received. Clear communication also has a role to play in changing the perception of value for money, by helping to educate investors on the features and value of the services it offers.
Value for money is not about offering services at the lowest cost, it’s about providing a service or product at a price that the client is willing to pay. Focussing on what clients’ value in addition to price is therefore essential. This ultimately boils down to aligning your culture to the needs of your clients. You should have a profound understanding of your culture and the impact of the firm’s actions on the outcomes your customers receive, as well as clear mechanisms for measuring and evidencing your culture.
Ultimately, those firms that contribute to the FCA’s advancement of its competition agenda will have access to greater opportunities. Consumers will have more choice within the market and the regulator will be closer to achieving its objective of making the markets work for the benefit of all consumers.
Phil Deeks is technical director at TCC