The Office of Fair Trading will not take any action over the FSA's derived market average commission rates for collective investment schemes (CIS), despite agreeing the calculations used were "incorrect".
This latest announcement responds to a complaint made by the Association of IFAs (Aifa) in April 2005, which said the market average commission rates included in the remuneration menu were having a significant anti-competitive effect on the market averages for independent advice.
Aifa argued this was because the data used by the Financial Services Authority to calculate the market average for CIS and investment bonds included both non-advised business and advised business, and therefore presented a lower market average than was actually representative of the true market average.
The FSA was said to have calculated the lump sum CIS average at 3.78% nominal percentage value (npv) because the data it took from product providers also included 55% of cases which carry trail commission only.
Aifa argued the true npv ought to be 5.59% if based on the standard commission model of 3% initial plus 0.5% trail, but the FSA responded by saying market average commissions would not be altered and were “good enough to use”.
Following Aifa’s complaint, the OFT put Aifa’s concerns to the FSA and the regulator subsequently investigated the matter.
The OFT says the FSA’s findings support Aifa’s contention the market average for CIS included in the menu was incorrect, but it is not taking any action because it considers there is “insufficient evidence of a significant adverse effect on competition to warrant further action by the OFT at this time”.
The FSA’s report states:
- There is evidence to suggest providers have included non-advised sales in their information returns;
- The market averages included in the menu are too low. However, the revised market average figure is unlikely to be of a magnitude to adversely influence consumer decisions; and
- There is insufficient evidence of consumer detriment to warrant the expense of changing the existing market average figures contained in the current menu.
The FSA says it is already addressing the concerns raised by Aifa by revising the wording in its questionnaire to minimise the chances of firms providing incorrect information in the future, and it is introducing new checks to improve the quality assurance of data it receives.
The OFT says it expects the FSA to act on its findings to ensure the market average for CIS is as accurate as possible and validation checks are as rigorous as possible.
Chris Cummings, director general of Aifa, says: “The menu has introduced for the first time a level-playing field on the disclosure of charges. We firmly believe that the introduction of this document has been a major step forward towards greater transparency in the financial services industry.
“However, we also believe that the FSA has over-engineered what was originally intended to be a straightforward guide for consumers.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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