FCA refers investment advice industry to CMA for in-depth review

The financial regulator says it has concerns about competition in the investment consultancy industry.

On 14 September 2017, the Financial Conduct Authority (FCA) announced its decision to refer investment consultancy and fiduciary management services to the Competition and Markets Authority for a market investigation.

The FCA’s assessment of the investment advice industry

The market investigation reference (MIR) to the Competition and Markets Authority (CMA) arises from the FCA’s Asset Management Market Study, in which the FCA identified a number of issues within the investment advice market. The FCA noted in its Asset Management Market Study Final Report that investors find it difficult to assess the advice they receive from investment consultants; there are low levels of switching in the market; and that the investment advice market is relatively concentrated.

Three of the largest investment advice firms (which the FCA estimate make up over 60% of the advice market) submitted “undertakings-in-lieu” in order to avoid a market investigation reference to the CMA. However, the FCA firmly rejected these undertakings in its announcement of a referral to the CMA.

Next steps

The CMA is tasked with investigating whether “any market feature (or a combination of features) prevent, restrict or distort competition in connection” with the investment consultancy and fiduciary management services market. In investigating these industries, the CMA will consider issues such as how these advisory services are supplied; how easy it is for customers to assess and compare the quality of advice; how easy it is to switch between advisors and how often customers might do so; and the role investment consultants have to play in the overall asset management market space. The CMA has confirmed that it has already begun the process of gathering evidence from industry players and it will publish an issues statement shortly, which will set out the focus of its investigation.

If the CMA concludes that there are adverse effects on competition, it can take action to remedy the issues it has identified, including (but not limited to) structural remedies; commitments from companies to modify their behaviour; recommending regulatory change; and opening competition investigations. It expects to conclude the market investigation by March 2019.

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