Its decision to cut fees on lifestyle funds may spark a mini price war in this area, but it is unlikely to have any effect on the smug firms that routinely soak their investors for running mundane managed funds.
More than two months ago the FCA published its interim report on the asset management industry. In a nutshell, this report suggested the industry was charging too much for a mediocre service, and that private investors in particular were being targeted by high fees. It was a coruscating indictment of a smug, complacent industry that has still failed to grasp why consumers regard it as greedy and bloated.
Instead of taking the criticisms on board, the industry indulged in a predictable bout of self-justification. But the evidence is clear: the FCA found that while charges for passive funds have been falling, those for active products have remained stable.
Over the past six years average margins in the industry were an eye-watering 35 per cent – more than double the 16 per cent of the average FTSE All-Share company. Adjust for the fact that employees are sharing in the profits through wages and bonuses, and the profitability is even higher. Compare with the competitive world of supermarkets where profit margins can run at 2 per cent.
The report said: “The data suggests that profitability is high relative to market benchmarks. The results of our analysis are consistent with competition not working as effectively as it could.”
Since the report was published, the asset management industry has done precisely nothing – and it will continue to do nothing until shamed or forced by regulation to make changes. Financial advisers are in the front line of this battle. Of the £212bn of retail sales made in 2015, 78 per cent (or more than £162bn) went via the advice community.
Platforms likewise have a huge role to play, yet the interim report said they while they can negotiate discounts “these do not appear to be widespread”.
The asset management industry is built on myths. There is the myth that active management adds to performance. With few exceptions it does not. As the report noted the majority of active managers are underperforming their indices once fees are taken out.
There is the myth that active management needs significantly higher fees. But why, when most decisions these days are computer-driven? And there is the myth that an adviser who does not recommend actively managed funds is not doing their job properly. Again, that is rubbish as many excellent advisers can confirm.
Asset management not only lacks transparency, but is clearly unwilling to compete or offer value to consumers. Managers are, in many cases, deceiving the public and profiting from their ignorance – and the day of reckoning cannot come soon enough.
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Advisers need more clarity on defined benefit transfers
Advisers who have chosen to steer clear of defined benefit transfers will be nodding sagely after the FCA clarified its position on a number of issues, including insistent clients.
Some of this clarification appears to comes down to what should be best practice anyway – that is knowing your client and considering their individual needs, situation and plans. In particular, advisers have been warned they must look at investments the client is planning to take up and their personal circumstances.
Some will no doubt feel they are being asked to indulge in a little crystal-ball gazing. Many advisers feel they are treading through a minefield, especially where insistent clients are concerned. What they really need is a clear map that they feel they can follow, rather than occasional clues along the way.
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Throw HMRC some slack
It is not often we can accuse HMRC of showing a genuine sense of humour, but congratulations are due for its list of the most optimistic self-assessment claims.
I loved the originality of charging thousands of pounds for Friday night “bonding sessions”. But my two favourites were pet food for a Shih Tzu guard dog and Armani jeans as protective clothing for a painter and decorator.
HMRC comes in for its fair share of criticism, not least for the amount of time it can take to deal with legitimate claims. But if its officers are having to trawl through this sort of nonsense, then perhaps we should make allowances.
Tony Hazell writes for the Daily Mail’s Money Mail section