19 February 2015
Following the announcement by the Financial Conduct Authority (FCA) that it is launching a market study into the investment and corporate banking markets,
Sue Lewis, Consumer Panel Chair, said:
The Panel is pleased to see that the FCA has decided to examine the investment banking market more closely. We would also strongly urge it to undertake a market study into the asset management sector without delay: as the Panel’s research has shown, opacity of costs and charges and conflicts of interest in this market have persisted for many years. This is bad for competition and, ultimately, to the detriment of retail investors.
The Panel will continue to press its recommendation[1] that the FCA should look at the feasibility of requiring investment managers to quote a single and comprehensive annual charge. This would allow consumers and their advisers to compare providers and assess value for money more effectively.
Moreover, if fund managers have to bear all costs outside of this single charge themselves, it would act as a powerful incentive on firms to improve efficiency and drive down costs. The argument that firms cannot predict future costs is unconvincing in light of the apparent ease with which they project returns.
Notes to editors
- In November 2014, the Consumer Panel published a discussion[1] paper on investment costs which underlined the lack of transparency in the market and the fact that hidden costs are often a multiple of the costs declared to the customer.
- Costs have a significant impact on the overall outcome of an investment. For example, the DWP has highlighted that an individual who saves throughout their working life into a scheme with a 0.5% annual charge could lose around 13% of their pension pot at retirement as a result of charges. A 1% annual charge could reduce that pot by 24%.
- Undeclared charges can be a multiple of the costs declared directly to retail investors. An investigation by pension fund Railpen found that additional underlying fees were three to four times higher, totalling between £210 to £280 million annually on total investments worth £20 billion.
- The Consumer Panel is a statutory body under the Financial Services Act 2012. It was initially established by the Financial Services Authority in December 1998. The Panel advises the FCA on the interests and concerns of consumers.
- The Panel’s membership is drawn from a broad range of backgrounds with expertise including market research, law, financial services industry, financial inclusion, European Regulation, financial regulation, consumer advice, campaigning, communications, compliance and later-life issues.
- The emphasis of the Panel's work is on activities that are regulated by the FCA, although it may also look at the impact on consumers of activities outside but related to the FCA's remit. More information about the Panel's work is available on its website or via its LinkedIn[2] and Twitter[3] accounts .