One of the FCA’s main objectives is to improve competition.
Judging by the constant bombardment of trade news currently about pricing, it seems the regulator may have achieved this particular objective.
Not a moment goes by now where a provider hasn’t chopped its price, or there has been a debate about which fund manager’s share class is cleaner than another. We are now operating in a market that is ‘super clean’ and super competitive.
This is quite astonishing when I look back just a couple of years. The big promotional stories at the time were about who had enhanced their commission the furthest, or what new pricing wheeze had been developed. Gone are the days (hopefully) when that 10 per cent limited commission offer becomes the headline of the day. This has got to be a refreshing outcome surely?
The banning of commission has had an almost overnight success. Clearly there are some parts of the market still trying to hang on to old models, but overall there is an embracing of the new rules. The removal of the conflict of interest between adviser and provider has firmly placed the adviser on the same side of the table as their customer.
This means customer outcomes will always come first. This has been without doubt a difficult transition for some. However, this short-term challenge will have significant long-term benefits – it improves competition, it increases the focus on quality, and it should remove the potential for bias.
However, it can’t all be that good, can it?
Overall, the danger is that there is simply a focus on price over quality. There has been such a focus on price in the past 18 months, especially from the regulator, that the outcome seems to be the cheaper the price, the better.
The best consumer outcome is clearly where the client gets the best possible product at a good price. However, I have seen a trend where the process is edging towards a product that is adequate, or passes a ‘screen’, but is provided at the cheapest possible price.
It is clearly not the best product for the client and it risks creating a commercial bias in another form, and becoming a future mis-selling scandal.
Simply buying a product because it is the cheapest risks creating a poor outcome. There is a need for detailed analysis that shows what the impact of a lower price on a specific product would have against a better performing but slightly higher costing product.
As guided architecture models start to reinvent themselves, there needs to be clear disclosure about the research process that underpins them. Are these propositions delivering the best product in the market, or are they providing good quality products at the lowest price?
This is a key question advisers and investors should get answered before they engage with these propositions.