Retail Distribution Review proposals: Impact on market structure and competition Prepared p for the Financial Services Authority March 2010
Objectives j and remit In 2009 Oxera assessed the impact on market structure and competition of the proposals that emerged from the Retail Distribution Review (RDR).1 This was to inform one element of the FSA’s cost–benefit-analysis (CBA) of the RDR proposals. The other elements of the CBA, such as benefits to consumers, were outside the scope of the Oxera research and were undertaken by the FSA and other external consultants.
This report presents the conclusions of Oxera’s research and the analysis of the survey results. For details on Oxera’s Oxera s conclusions in relation to the impact on market structure and competition, refer to the Executive Summary of the Oxera 2009 report—for convenience this is also included in Appendix 4.
Due to time constraints, constraints only very limited primary research was conducted by Oxera. However, in the secondary research, Oxera used the considerable amount of analysis of the RDR proposals available within the FSA and in the public domain. Following the receipt of feedback from firms to the FSA Consultation Paper,2 the FSA decided to conduct further research into the order of magnitude of the compliance costs and asked Oxera to contribute to the design of the ‘behavioural questions’ in a survey undertaken by the FSA among distributors and providers, and to undertake an analysis of these behavioural questions questions. More generally, the FSA asked Oxera to assess whether any of its conclusions needed to be revised in light of the responses received from firms in the survey results—feedback on the consultation paper (CP) suggested that more advisory firms would exit the market than FSA/Deloitte 2009 research had indicated. indicated 1
Oxera (2009), ‘Retail Distribution Review Proposals: Impact on Market Structure
and Competition’, report prepared for the FSA, June. 2 FSA
(2009), ‘Distribution of Retail Investments: Delivering the RDR—
CP 09/18’,, June.
Oxera
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Retail Distribution Review proposals: Impact on market structure and competition
Structure of this report This report provides an update on the analysis and conclusions presented in Oxera’s 2009 report. Therefore, it does not provide any background or context, and in describing the survey results it focuses on the key aspects of the survey that are relevant to the assessment of the impact of the RDR proposals on market structure and competition—other survey results are not described in this report but are included in the appendices. The report first sets out the research activities activities, discusses the main survey findings and then provides a short overview of other relevant findings in the survey. − Appendix 1 contains the detailed survey results. − Appendix 2 describes the survey sample sample. − Appendix 3 provides the results of the analysis of the impact of the RDR proposals on market capacity. − Appendix 4 contains the Executive Summary of the Oxera 2009 report for the FSA FSA.
Oxera
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Retail Distribution Review proposals: Impact on market structure and competition
Research activities The following research activities were undertaken. − Identification of issues raised in the firms’ responses to the CP that may be relevant to the assessment of market structure and competition. − Design of ‘behavioural questions’ for the FSA survey undertaken among distributors and providers, and analysis of the responses to these questions. − Interviews with a number of providers, platforms, networks and advisers to inform Oxera’s understanding of the impact of the RDR proposals. − Analysis (where relevant) of additional data (such as the Retail Mediation Activities Return (RMAR) database from the FSA) to provide a cross-check of some of the survey results. − Review of the mechanisms identified in the Oxera report through which the RDR proposals could affect market structure and competition competition.
Oxera
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Retail Distribution Review proposals: Impact on market structure and competition
Survey y among g providers and advisory y firms The FSA undertook a survey among advisory firms and providers. The survey sample consists of a good mix of firms in terms of firm status and size.The results among advisory firms were weighted to make sure that the mix of firms in terms of type and size reflected the actual mix of firms in the market— the weights were provided by the FSA. The results of the survey among providers were not weighted but are presented by type of firm. A description of the survey sample is provided in Appendix 2. The sample of advisory firms was skewed in two main directions—the response rate for firms directly authorised was around 18%, while the response rate for firms with appointed representatives was around 2% 2%. In addition addition, the survey was to a limited extent skewed towards larger firms. The results of the survey have therefore been weighted to reflect these differing response rates.
Limitations of survey Surveys are subject to limitations and this one is no exception. Firms were asked to provide their views on how they would respond to the RDR proposals. Their actual behaviour may differ from their survey response, which may bias the results in different ways. For example, firms that do not have a good understanding of the implications of the new rules may think that they will not affect them too much (eg (eg, they may claim that they will not exit the market), but in practice may end up doing so, whereas firms that do not agree with the proposals may indicate that they will exit but in practice may stay in the market. Although we are now close to the end of the RDR, for some firms it may still be too early to assess how they would respond to the proposals. Most firms seem to have a relatively good understanding of the proposals. When asked whether they would exit the market, 18.5% of firms said that it was too early to tell. This suggests gg that there is still a degree g of uncertainty y about the impact of the proposals on the market. The RDR proposals affect different types of firms in different ways. Some firms indicated that they will reduce their number of advisers, while others indicated that they would increase them. Overall, there is no clear bias that would result in underestimating the impact of RDR. If anything, firms that do not agree with the RDR proposals may have had an incentive to claim that they would exit the market while in practice they may remain remain.
Oxera
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Retail Distribution Review proposals: Impact on market structure and competition
Impact on market structure (1) ( ) Firms exiting the market − The interviews and survey indicate that both the increase in professional standards and change in adviser charging are the most important drivers of change. − The survey indicates that various advisory firms, in particular small IFAs, are likely to exit the market. They consider the costs of raising their professional standards too high and/or their advisers are already close to retiring, making the investment not worthwhile. An additional reason is that for some of these advisory firms commissions are an important source of revenues, making the transition to a fee-based structure more challenging. g g ((See slides 2–8, Appendix pp 1.)) − The actual overall impact on the capacity of the advice market of advisory firms leaving the market is relatively limited. If all the firms that indicated that they are (very or quite) likely to exit the market do so, this would result in a 11% reduction d ti iin th the number b off advisers, d i a 9% reduction d ti iin advisory firms’ revenues, and a 11% reduction in terms of clients advised, assuming that this business is not picked up by other firms. These results can be found in Appendix 3.
Oxera
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− The estimate of the impact on market capacity is based on the finding that 25% of advisory firms are likely to exit the market. Around 7.5% of the firms that would exit the market indicated that they would do so even if RDR did not go ahead (slide 8, Appendix 1). These are in particular the smaller firms with between one and 19 advisers. This means that around 23% of advisory firms would exit the market because of the RDR p proposals. p − As shown in slide 7, the likelihood of exit is higher for firms with lower revenues; for example, 46% of firms with revenues amounting to less than £50,000 reported that they are ‘very’ or ‘quite’ likely to close or sell their main advisory capability. bilit Si Similarly, il l slide lid 8 shows h th thatt fifirms with ith a smallll number of advisers are more likely to exit than those with more advisers. Slide 9 shows that the probability of exit is higher for those that are appointed representatives than for those that are directly authorised. The fact that a significant proportion of the firms that are likely to exit are small advisory firms explains why the impact on market capacity is much more limited (as explained, around 11%). − All network providers that participated in the survey indicated that they are unlikely to exit the market market.
Retail Distribution Review proposals: Impact on market structure and competition
Likelihood of exit, by firm revenue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% =£500,000
No response
Total
Likelihood of exit, by firm revenue V Very lik likely l Oxera
Q i lik Quite likely l
Q i unlikely Quite lik l
V Very unlikely lik l
T early Too l to say 7
V Very lik likely l to change h even iin absence b off RDR Retail Distribution Review proposals: Impact on market structure and competition
Likelihood of exit, by y number of advisers 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1-3 advisers
4-9 advisers
10-19 advisers
20-49 advisers
50+ advisers
No response
Total
Likelihood of exit, by number of advisers Very likely Oxera
Quite likely
Quite unlikely
Very unlikely 8
Too early to say
Very likely to change even in absence of RDR Retail Distribution Review proposals: Impact on market structure and competition
Likelihood of exit, by authorisation status 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Directly authorised
Appointed representative
Total
Likelihood of exit, by authorisation status Very likely Oxera
Quite likely
Quite unlikely
Very unlikely 9
Too early to say
Very likely to change even in absence of RDR Retail Distribution Review proposals: Impact on market structure and competition
Impact on market structure (2) ( )
As a result of the signficantly lower response rate of Appointed Representative p ((AR)) firms,, and the absence of any y large g ((more than 19 advisers) AR firms responding, the weighting for this market segment is based on the assumption that the probability that these firms exit the market is the same as for smaller (4–19 advisers) AR firms (for which there is a relatively low sample size as well) well). If an alternative assumption is made that the larger AR firms behave more like the larger directly authorised firms, the impact on market capacity as a result of firms exiting the market would be less—the reduction in the number of advisers would then be between 6% and 8%. However, this approach is likely to under under-estimate estimate the impact and should therefore be seen as a lower boundary.
Oxera
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Retail Distribution Review proposals: Impact on market structure and competition
Impact on market structure (3) Change in number of advisers
Change in status
Firms were asked whether they would expect to increase or decrease the number of advisers. For all firms (including those indicating that they are likely to be leaving the market), ) around 30% expect to reduce the number of advisers by more than 5%, while around 12% expect to see an increase in advisers of more than 5% post-RDR implimentation (slides 11 and 12, Appendix 1).
Around 15% of advisory firms indicated that they are likely to change the status of their firm (slide 15, Appendix 1), and smaller firms are more likely to do so than larger firms.
Firms were asked to provide an estimate of the reduction in the number of advisers. This indicates that (excluding the firms that are likely to exit the market), on the one hand, the total number of advisers in the market would be reduced by 1.6%, and on the other hand increased by 1.8%. (slide 3, Appendix 3). This net increase in the number of advisers is in addition to the reduction in advisers as a result of firms exiting the market (presented on slide 6).
Slide 16, Appendix 1, presents what status advisory firms are planning to adopt for the 15% of firms that indicated that they were planning to change status. Since ‘limited range/multi-tied’ firms are already ‘restricted’ restricted , their change of status will have a limited impact on the market. Although 83% of independent and WoM firms that are planning to change status are indicating that they will move to restricted status, this will still have a limited impact on the overall market as only 14% of independent and WoM firms are planning to change status status.
When advisory firms exit, some of their advisers may stay in the sector and, for example, join another firm as an adviser or obtain a non-adviser role by y assisting g advisers in a number of specific p non-advisory tasks. Others may leave the sector altogether. However, the sample for this particular question in the survey was too small to obtain reliable results, and therefore no responses are reported here. The survey asked firms f about the change in the number off advisers in 12 and 36 months’ time. It indicates that some firms start to change the number of advisers only after 36 months—both the number of firms that increase and decrease their advisory capacity is larger in 36 months than in 12 (slides 11 and 12, Appendix 1).
Oxera
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Retail Distribution Review proposals: Impact on market structure and competition
Impact on market structure (4) ( ) Costs of training
Execution only
On the basis of the survey and other evidence, the FSA has estimated that the costs of training required to meet the new professional standards would be on average between £5,000 and £7,300 per adviser—this allows for the cost of materials, exams and study time. This is based on hourly remuneration plus an allowance for a 30% overhead for the advisers paid study leave and 60% of salary for study in own time time. This is in principle a relatively small cost compared with the turnover of most firms, but may be still be significant for some advisers, particularly those that are close to retiring or have very small turnover per adviser.
As indicated in the Oxera 2009 report, it is clear that the RDR proposals will somewhat increase the use of the execution-only channel. For example, advisory firms indicated that some clients who are not willing to pay an adviser fee would make an unadvised purchase (slide 20, Appendix 1). The order of magnitude of the impact is less clear, however. The survey indicates the following following. − 12% of providers indicated that the share of the executiononly channel would increase a little (5–20%), and 9% indicated it would increase significantly (more than 20%). It seems that, in particular, the larger providers expect the execution-only channel to become more important (slide 45, Appendix 1). − Most of the advisory firms surveyed did not have plans themselves to provide a route for clients to access products without advice. 15% of them would provide a route for unadvised sales (slide 26, Appendix 1).
Oxera
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Retail Distribution Review proposals: Impact on market structure and competition
Comparison with other survey y results How do these survey results compare with estimates in previous studies? The results from other surveys can be summarised as follows. − A report by Ernst & Young in February 2009 suggests that the combined effect of the RDR proposals will be to reduce the number of IFA firms from 16,000 to 10,000 (35–40% reduction) by 2013.1 − Internal FSA estimates of firms exiting the market put the figure at between 12% and 18%, with a maximum of 21%, based on a survey as part of the Discussion Paper Impact study.2 − The IFA Census survey suggested that 25% of advisers would leave the advice market, with 6% going elsewhere in the industry, 4% leaving the industry, and 15% retiring (of which 7% would have retired anyway). Subtracting those who would have retired in any case gives a figure of 18%, which is t towards d the th upper end d off th the FSA’ FSA’s original i i l range.3 1
Ernst & Young (2009), ‘In Shifting Sands: UK Life and Pensions Outlook’,
− The Deloitte (2009) survey suggests a smaller number of firms exiting.4 The results show that 71% of firms would not consider changing their status as a result of the RDR proposals. 16% responded that it was too early to say, and 13% stated they would consider a change in status (of which 9% stated that they would move to the non-independent sector and 4% stated that they would exit the market entirely).
The Oxera analysis suggests that the Deloitte survey may have underestimated, and the Ernst & Young survey overestimated, the impact of the RDR proposals. More importantly, these surveys looked only at the number of advisory firms that would exit the market, but did not estimate the exact impact on the capacity of the market in terms of the number of advisers, revenues and clients. When taking into account the size of the firms s tthat at would ou d e exitt tthe e market, a et, tthe eO Oxera eaa analysis a ys s sshows o s tthat at the impact on market capacity is relatively limited (as presented on slide 6).
February. 2 The
FSA has advised that this range is of limited use because, since the
survey was conducted, both the understanding of the RDR has moved on and the proposals have changed substantially. 3
NMG (2009), ‘Implications for the Adviser Sector Insights Report No 4’,
January. 4 Deloitte
(2009), ‘Firm Behaviour & Incremental Costs’, research for the FSA,
May 14th 14th.
Oxera
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Retail Distribution Review proposals: Impact on market structure and competition
Further observations from the survey y ((1)) The analysis of the survey results in the following additional observations. − Around half of providers are likely to provide some mechanism to collect and distribute adviser charges—bigger providers are more likely to do so (slide 51, Appendix 1). − More than half of the providers will have multiple factory gate prices (FGPs), with again bigger providers being more likely to do so (slide 52, Appendix 1). − Providers consider the level of FGPs a fairly important factor in their proposition to advisers, but it is not the most important: past performance and the product features (among others) are seen as more important (slide 56 56, Appendix 1) . − Among providers, RDR is seen as resulting in generally more competition between providers, (slides 57—61, Appendix pp 1), ), and leading g to a decrease in revenue and profits for providers (slides 66 and 69, Appendix 1). However, there are also some firms that expect an increase in their profitability.
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− Consistent with the views of providers, distributors also think that the RDR will result in a reduction in their revenues and profits, with their main reason for exiting being lack of profitability (slides 9, 10 and 8, Appendix 1). − The predicted impact on what customers will be prepared to pay is also consistent with this, with most firms (~80%) predicting that customers will be prepared to pay the same, or less, less than they do now (slide 18 18, Appendix 1) 1). − Notwithstanding this conclusion, most firms (around 60%, with ~20% unsure ) think they will be able to move to the provider charging model, with the larger firms being more confident ((slide 19,, Appendix pp 1). ) − Although what advisers will provide will be largely similar (post-RDR), there will be less emphasis on retail investment advice, and this change will be concentrated in the smaller firms (slide 23, Appendix 1). Slide 27 suggests that some advisers d i would ld seek k tto iincrease revenues ffrom other th products in particular mortgages and protection products.
Retail Distribution Review proposals: Impact on market structure and competition
Further observations from the survey y ((2))
− Compliance costs have been estimated by the FSA. It is expected p that increases in compliance p costs will be p passed on to consumers. The survey indicates that the majority of advisory firms expect a reduction in turnover (slide 9, Appendix 1), and that a higher reduction in turnover is envisaged by those firms that are most likely to exit the market Advisory firms also expect a significant share of their market. customers to be willing to pay less than they currently are (slide 18, Appendix 1) and that such reduction in willingness to pay is more pronounced among customers with smaller amounts of money to invest. These responses therefore suggest that a number of consumers may reduce their demand and not require advice post-RDR and that such consumers are likely to be those with smaller amounts of money to invest. Slide 20 (Appendix 1) suggests that these consumers would not make a purchase at all (41%), make an advised d i d purchase h ffrom a lower-cost l t advisory d i fi firm (15%) (15%), make an unadvised purchase (28%), or buy an alternative financial services product not covered by RDR (3%) (13% of the survey respondents indicated that consumers would do something else).
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These observations do not affect Oxera’s conclusions in its 2009 report. p The finding g that FGPs are likely y to be a fairly y important factor in providers’ propositions, but not the most important one, is not inconsistent with the conclusion that FGPs may increase in the short term but that any excess profits may be competed away in the long term.
Retail Distribution Review proposals: Impact on market structure and competition
Role of platforms (1) ( ) Various firms indicated in their response to the FSA CP 09/18 that they expect platforms to become more important in the market post-RDR. This is indeed also reflected in the survey. Around 47% of advisers would increase the use of platforms post-RDR (slide 25, Appendix 1), and 37% of providers indicated that the share of products distributed through platforms would increase (see slides 47 47–49, 49 Appendix 1) 1). Positive effects of platforms Platforms may facilitate the payment of adviser charges. This is likely to result in a smoother transition for advisers to a market where consumers pay for advice themselves directly rather than indirectly through commissions. Furthermore, platforms facilitating the payment of adviser charges are likely to be a more cost-efficient solution for investment funds than the alternative of creating multiple share classes. Platforms may give smaller advisers in particular more bargaining power over providers than they would otherwise have had. This may result in lower FGPs (or (higher) fees charged to the provider for access to the platforms), which may be passed on to advisers and consumers consumers. In other words words, it could contribute to the sustainability of the business model of smaller advisory firms.
Regulatory and competition policy concerns? The increased role of platforms does not affect Oxera’s overall conclusions about the general impact of the RDR proposals on market structure and competition in the short term. The increased importance of platforms does not appear to reverse or change signficantly any of the other dynamic trends identified (although, as indicated, the technical transition to adviser charging models is made easier) easier). The overall infrastructure and business models and modes of operation of platforms are still developing. It is difficult to predict at this point in time how platforms will develop in the medium and long run, and how their position and behaviour would subsequently affect market structure t t and d competition. titi Alth Although h th the RDR proposals l are likely to make platforms more attractive to advisers, and potentially to providers, the economic characteristics of platforms that could raise regulatory and competition issues remain. − Given the economies of scale and network externalities (the more advisers use a platform, the more attractive that platform becomes to providers and vice versa), it may be that market forces would result in a limited number of platforms in the market (particularly if advisers use only one platform rather than many).
Platforms also give advisers the opportunity to offer a more holistic service to consumers, potentially leading to more efficient portfolio management services. Oxera
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Retail Distribution Review proposals: Impact on market structure and competition
Role of platforms (2) ( ) − Platforms operate in two markets—one for advisers and one for providers—and can in principle set charges on both sides or charge one side and pay the other side—for example, by charging providers and passing on part of that fee to advisers or end-consumers. There is a large body of literature on the competition economics of two-sided markets. It is beyond the scope of this study to assess the competition p issues in relation to p platforms. However,, it may y be useful to monitor the market from a regulatory and competition policy perspective. For example, to maintain effective competition between platforms, it would be important to make sure that consumers and advisers can easily switch between platforms platforms.
All the indications from the survey and interviews suggest that the role of platforms will become more important and that platforms can (and are likely to) help provide the infrastructure that will allow advisers to more easily transfer to the adviser charging model. However, the economic nature of platforms is that there are likely to be significant economies of scale as well as network effects, in platform operation. This could (but is not a foregone g conclusion)) create some issues in the future. Platforms could become powerful with respect to both providers and advisers if they become a critical part of most distribution and there is a very concentrated market in the supply of platform services. Further research and market monitoring may be required required.
− Although the current set-up does not necessarily raise issues in relation to commission bias, potential issues around a provider bias cannot be ruled out. For example, if platforms negotiate with providers on access fees and (part of) these are passed on to advisers in the form of a rebate (per product), this may potentially affect advisers’ incentives if these rebates vary by product or provider (although the FSA has explained that this would be banned under RDR rules). ) Even if rebating g to advisers is not allowed,, the p price to the adviser of using a platform could still vary by product or provider, thus still creating the possibility of a misaligned incentive. There is, however, no evidence that this is currently happening.
Oxera
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Retail Distribution Review proposals: Impact on market structure and competition
Ban of factoring g services (provided ( by y providers)) ((1)) The FSA has proposed a ban on factoring services provided by providers. In theory, theory a ban on factoring (provided by providers) may have a significant impact on the market—if it results in a finance gap for advisers (that cannot be filled by alternative sources of finance), it may make certain business models unsustainable. This could result in advisers exiting the market or merging with other firms firms. The extent of the actual impact will depend on the importance of indemnity commissions for advisers and the extent to which advisers can use alternatives to factoring provided by providers. An assessment based on a detailed empirical analysis of the potential impact of the ban on individual advisory firms is beyond the scope of this report. However, the following observations can be made. − The ep providers’ o de s su survey ey indeed deed sshows o s tthat at tthe e larger a ge tthe e proportion of their commissions that is paid out in advance of the sale of the product, the more likely it is that the RDR proposals will have an impact on providers’ distribution strategy (slide 31, Appendix 1). The distributors’ survey shows that advisory firms with 25–50% and 75–100% of commissions received from providers in advance are more likely to exit the market than the average firm. However, the results are not entirely consistent—advisory firms with 50–75% of their commissions paid in advance are less likely to exit the market than the average firm. firm Oxera
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− It should be borne in mind that the ban on factoring only affects advisers that sell a significant proportion of regular premium products (rather than single premium products). Regular premium products consist of products such as pensions and regular savings products. Some regular savings products (such as ISA) can in principle be sold without advice. The regular premium product market itself is likely y to be able to overcome some or all of the impact p of adviser charging if advice comes to be seen, and accepted, by consumers as being a separate service from the resulting product that is then sold. However, this is an area where there is little information on whether this will come about. This means that the ban on factoring would in particular affect the demand for the more complex regular savings products—these products could become less attractive for advisers to sell. Indeed, when asked whether they would increase the focus on single-premium products (rather than regular premium products), more than 20% of the advisory firms said ‘yes’.
Retail Distribution Review proposals: Impact on market structure and competition
Ban of factoring g services (provided ( by y providers)) ((2)) − Finally, some of the effects of the ban of factoring services provided by providers may be temporary. Clients of advisers can agree to pay the adviser along with the regular premium, in which case this ban will largely have an effect on the cash flow of advisers, but within a certain period of time; they may be able to address the shortfall in working capital by using alternative sources of finance, for example. Networks may be interested in offering g factoring g services ((eg, g, in combination with a bank) to their members. Overall, there is likely to be some impact on this regular premium market. Some advisers may find it more costly to advise on regular premium products. However, notwithstanding this, there are changes to the way potential clients see advice and, there are ways that payments by clients for advice can approximately mirror the current position. There are also possibilities for others to take over the factoring role. If these conditions are met, the overall impact on this part of the market may be limited. In addition, the data provided by the ABI for 2009 suggests that, as a proportion of total premiums paid across savings and investment products, single premium products account for around 90% of new business (and around 80% of the total stock of these products). The impact on the overall business of advisers and suppliers is, therefore, likely to be relatively small.
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Retail Distribution Review proposals: Impact on market structure and competition
Conclusions In its 2009 study, Oxera concluded that the post-RDR landscape is likely to feature fewer small independent IFAs, some of which will leave the market entirely, while others will join larger firms or networks in the independent or non-independent sectors. This may lead some consumers to experience reduced choice in the short term. However, if demand for advice outstrips supply, given that entry barriers are unlikely to be prohibitive (although higher as a result of RDR), new entry or expansion by existing players would fill the gap. This second report provides further evidence that some advisory firms will indeed exit the market, but that the impact on the market capacity and structure is likely to be limited. The Oxera 2009 report also drew a number of conclusions in relation to the impact that the RDR proposals could have on competition. These conclusions do not change. In particular, the report indicated that there could be a mechanism through which the RDR p proposals p could lead to higher g or lower FGPs in the IFA channel. The mechanism through which RDR could lead to higher FGPs arises because, post-RDR, IFAs will no longer have an incentive to put pressure on providers to offer high levels of commission. Under the current regime, higher commissions lead immediately to higher adviser incomes incomes, while post-RDR changes in FGPs will only be able to affect adviser incomes indirectly through higher sales volumes.
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This in turn requires customers to shop around between advisers on the basis of the FGP they offer. Such a change may ease the downward pressure on FGPs exerted by intermediaries. (However, if the FGP that they can offer become a focal point of competition between advisers, or in the direct sales route, end-consumers may reassert this competitive pressure.) In terms of validating this mechanism mechanism, the evidence for the RDR leading to higher FGPs is mixed both in the Oxera 2009 report and in this second report. Overall, while there is a risk of higher FGPs in the short term, in the longer term there are ways in which higher FGPs may be competed away, such as through increased transparency transparency, leading to competition on wholesale prices via end-customer behaviour and through alternative ways that providers will compete to influence advisers’ decisions. To the extent that p platforms p play y a more significant g p part in facilitating adviser charging, FGPs may become simpler to compare, with a focus on the price to the platform. This might make it easier for comparison sites to concentrate on this FGP, which creates a mechanism for competitive pressure on (FGP) price However price. However, it is still not clear that this is where the market will end up.
Retail Distribution Review proposals: Impact on market structure and competition
Appendix 1: Survey results 1. Distributors’ survey
Note: This appendix contains the detailed survey results (see Appendix 2 for a description of the survey sample). The main conclusions drawn from the slides are presented in the main body of the report.
Oxera
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Retail Distribution Review proposals: Impact on market structure and competition
Likelihood of exit exit, by impact of RDR on turnover 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Increase turnover significantly
Increase turnover a little
It will make no difference
Decrease turnover slightly
Decrease turnover significantly
Total
Likelihood of exit, by impact of RDR on turnover Very likely
Oxera
Quite likely
Quite unlikely
Very unlikely
Too early to say
2
Very likely to change even in absence of RDR
Retail Distribution Review proposals: Impact on market structure and competition
Likelihood of exit exit, by firm revenue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% =£500,000
No response
Total
Likelihood of exit, by firm revenue Very likely Oxera
Quite likely
Quite unlikely
Very unlikely
Too early to say 3
Very likely to change even in absence of RDR Retail Distribution Review proposals: Impact on market structure and competition
Likelihood of exit exit, by number of advisers 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1-3 advisers
4-9 advisers
10-19 advisers
20-49 advisers
50+ advisers
No response
Total
Likelihood of exit, by number of advisers Very likely Oxera
Quite likely
Quite unlikely
Very unlikely
Too early to say 4
Very likely to change even in absence of RDR Retail Distribution Review proposals: Impact on market structure and competition
Likelihood of exit exit, by average client income 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% £75,000
Not specified
Total
Likelihood of exit, by average client income Very likely
Oxera
Quite likely
Quite unlikely
Very unlikely
Too early to say
5
Very likely to change even in absence of RDR
Retail Distribution Review proposals: Impact on market structure and competition
Likelihood of exit exit, by authorisation status 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Directly authorised
Appointed representative
Total
Likelihood of exit, by authorisation status Very likely Oxera
Quite likely
Quite unlikely
Very unlikely
Too early to say 6
Very likely to change even in absence of RDR Retail Distribution Review proposals: Impact on market structure and competition
Likelihood of exit exit, by proportion of commission received from providers in advance 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0%-25%
25%-50%
50%-75%
75%-100%
Total
Likelihood of exit, by proportion of commission received from providers in advance Very likely
Oxera
Quite likely
Quite unlikely
Very unlikely
Too early to say
7
Very likely to change even in absence of RDR
Retail Distribution Review proposals: Impact on market structure and competition
Main reason firm would close/sell its advisory capability by number of advisers capability, Base: firms that would close/sell advisory capability 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1-3 advisers
4-9 advisers
10-19 advisers
50+ advisers
Total
Main reason firm would close/sell its advisory capability, by number of advisers Firm likely to close or sell advisory capabilities even if RDR did not go ahead It would ld nott be b profitable fit bl tto remain i iin th the market k t as a resultlt off RDR Other reason
Oxera
8
Retail Distribution Review proposals: Impact on market structure and competition
Impact of RDR on turnover turnover, by average client income 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% £75,000
Not specified
Total
Impact of RDR on turnover, by average client income Increase turnover significantly It will make no difference Decrease turnover significantly
Oxera
Increase turnover a little Decrease turnover slightly
9
Retail Distribution Review proposals: Impact on market structure and competition
Impact of RDR on profitability profitability, by average client income 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% £75,000
Not specified
Total
Impact of RDR on profitability, by average client income Increase profitability significantly It will make no difference Decrease profitability significantly
Oxera
10
Increase profitability a little Decrease profitability slightly
Retail Distribution Review proposals: Impact on market structure and competition
Change in number of advisers over next 12 months months, by firm revenue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% =£500,000
No response
Total
Change in number of advisers in next 12 months, by firm revenue Decrease by 25% or more Increase by 5-25%
Oxera
Decrease by 5-25% Increase by more than 25%
11
Stay the same (less than 5% change)
Retail Distribution Review proposals: Impact on market structure and competition
Change in number of advisers over next 36 months months, by firm revenue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% =£500,000
No response
Total
Change in number of advisers in next 36 months, by firm revenue Decrease by 25% or more Increase by 5-25%
Oxera
Decrease by 5 5-25% 25% Increase by more than 25%
12
Stay the same (less than 5% change)
Retail Distribution Review proposals: Impact on market structure and competition
Main reason why firm would increase or maintain provision of advice, by firm revenue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% =£500,000
No response
Total
Main reason why y firm would increase or maintain p provision of advice,, by y firm revenue Limited knowledge/experience of other sectors Limited opportunity/demand for advice in other sectors More attractive remuneration and greater profitability in the investment sector Consumer demand for investment advice will increase as a result of the RDR Simplified advice processes may offer a more cost-effective approach to distributing to clients Other reason
Oxera
13
Retail Distribution Review proposals: Impact on market structure and competition
Main reason why firm would decrease provision of advice, by firm revenue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% =£500,000
No response
Total
Main reason why firm would decrease provision of advice, by firm revenue Shortage of suitable qualified advisers due to new level of professional qualifications required Provision of advice will become significantly more expensive due to new level of professional qualifications Consumer demand for investment advice will reduce as a result of Adviser Charging and Disclosure More attractive remuneration and greater profitability in other sectors / product markets Other reason
Oxera
14
Retail Distribution Review proposals: Impact on market structure and competition
Likelihood of status change change, by firm revenue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% =£500,000
No response
Total
Likelihood of status change, by firm revenue Very likely
Oxera
Quite likely
Quite unlikely
Very unlikely
15
Too early to say
Very likely to change even in absence of RDR
Retail Distribution Review proposals: Impact on market structure and competition
What would firm change status to to, by firm status Base: the 15% of firms stating that they were likely or very likely to change Restricted advice Restricted advice (with reduction in (but maintain Independent the scope of present scope of advice advice provided) advice) Execution only Independent
5
38
45
13
Whole of market
0
87
13
0
Limited range/multi-tie
0
54
47
0
Combination of the above
0
0
100
0
Other
0
0
0
100
Total
6
41
39
13
Note: The table shows the weighted proportion of responses for each category. It shows the change as reported—some of the indicated changes may not represent a significant change from the pre- to postRDR market. The proportion of respondents in each category who reported they were likely or very likely to change status were: Independent (14.7%), (14 7%) Whole of market (9.1%), (9 1%) Limited range/Multi range/Multi-tie tie (25 (25.1%), 1%) Combination of the above (1.5%), and Total (14.8%). Oxera
16
Retail Distribution Review proposals: Impact on market structure and competition
Why firm would consider changing its status status, by firm revenue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% =£500,000
No response
Total
Wh firm Why fi would ld consider id changing h i its it status, t t by b firm fi revenue If firm retained its status, commercial prospects/profitability would decrease as a result of RDR If firm changed its status, commercial prospects/profitability would increase as a result of RDR Other reason
Note: This is for the 15% of firms stating that they were likely or very likely to change . Oxera
17
Retail Distribution Review proposals: Impact on market structure and competition
Difference between up-front up front fee clients would pay and fee currently paid, by firm revenue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% =£500,000
No response
Total
Difference between up-front fee clients would pay and fee currently paid, by firm revenue
Oxera
Clients prepared to pay more than now
Clients prepared to pay the same as now
Clients prepared to pay less than now
No response
18
Retail Distribution Review proposals: Impact on market structure and competition
Would firm be able to move to Advisor Charging model model, by firm revenue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% =£500,000
No response
Total
Would firm be able to move to Advisor Charging model, by firm revenue Yes, and provide the same service as now Yes, but provide significantly different set of services No Already operate an Advisor Charging model Unsure
Oxera
19
Retail Distribution Review proposals: Impact on market structure and competition
What clients not willing to pay adviser charge would do do, by firm revenue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% =£500,000
No response
Total
What clients not willing to pay adviser charge would do, by firm revenue Not make a purchase at all Make an advised purchase from a lower cost firm Make an unadvised purchase B an alternative Buy lt ti financial fi i l product d t nott covered db by RDR Other
Oxera
20
Retail Distribution Review proposals: Impact on market structure and competition
Impact on clients clients’ spending on financial products products, by average client income 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% £75,000 Not specified Impact on clients' spending on financial products, by average client income
Buy same product(s) in same volumes (+ or - 5%) Buy y over 15% more of the same p product(s) ( ) Buy over 15% less of the same product(s) Other
Oxera
21
Total
Buy 5-15% more of the same product(s) Buy y 5-15% less of the same p product(s) ( ) Buy significantly different products
Retail Distribution Review proposals: Impact on market structure and competition
Would firm increase focus on single-premium single premium products products, by average client income 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% £75,000
Not specified
Total
Would firm increase focus on single-premium products / lump sum investments, by average client income No
Oxera
22
Yes
Retail Distribution Review proposals: Impact on market structure and competition
To what extent will firm change focus on retail investment products, by firm revenue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% =£500,000
No response
Total
To what extent will firm change focus on retail investment products, by firm revenue Significantly increase provision of advice on retail investment products (increase by more than 20% by value of advice given) Modestly increase provision of advice on retail investment products (increase by 5% to 20%) Make no change in business focus on retail investment products (changes between -5% and 5%) M d tl decrease Modestly d provision i i off advice d i on retail t il iinvestment t t products d t (d (decrease b by 5% tto 20%) Significantly decrease provision of advice on retail investment products (decrease by more than 20%)
Oxera
23
Retail Distribution Review proposals: Impact on market structure and competition
Impact of RDR proposals on the way that the business is run 100 90 80
Proportion of responses
70 60 50 40 30 20 10 0 Increase use of Increase ability to Increase reliance on Increase focus on platforms provided by provide administration product providers to single-premium third parties services to clients provide administration products / lump sum services investments
Increase focus on regular premium products / regular contribution investments
Provide route for clients to access products without advice (ie non-advised sales)
Impact of RDR proposals on the way that the business is run No
Oxera
Yes
24
Retail Distribution Review proposals: Impact on market structure and competition
Would firm increase use of platforms provided by third parties, by firm revenue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% =£500,000
No response
Total
Would firm increase use of p platforms provided p by y third parties, p , by y firm revenue No
Oxera
Yes
25
Retail Distribution Review proposals: Impact on market structure and competition
Would firm provide route for clients to access products without advice, by average client income 100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0% £75,000
Not specified
Total
Would firm provide route for clients to access products without advice, advice by average client income No
Oxera
26
Yes
Retail Distribution Review proposals: Impact on market structure and competition
Other product markets or services firm would seek to increase revenues from, by firm revenue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% =£500,000
No response
Total
Other product markets or services firm would seek to increase revenues from, by firm revenue Mortgages - retail Protection - retail General insurance - retail Corporate market Discretionaryy asset management g for 'retail' clients Discretionary asset management for 'professional' clients None - will not seek to replace any decreased revenues from advice on retail investment products Other
Oxera
27
Retail Distribution Review proposals: Impact on market structure and competition
2. Providers’ survey
Oxera
28
Retail Distribution Review proposals: Impact on market structure and competition
Impact on distribution strategy strategy, by firm sales 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Up to £50m
£50-500m
Over £500m
Total
Impact on distribution strategy, by firm sales Significant impact Oxera
Some impact
Minimal impact 29
No impact
Unsure Retail Distribution Review proposals: Impact on market structure and competition
Impact on distribution strategy strategy, by percentage of profits from retail investment products 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Under 10% 10-19%
20-29%
30-39%
50-59%
60-69%
70-79%
80-89%
90-100% Don't know
Total
Impact on distribution strategy, by percentage of profits Si ifi Significant t iimpactt
S Some iimpactt
Mi i l iimpactt Minimal
Note: There are no observations for the 40–49% bracket for percentage of profits. Oxera 30
N iimpactt No
U Unsure
Retail Distribution Review proposals: Impact on market structure and competition
Impact on distribution strategy strategy, by commission paid in advance for sale of investment products 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0-25%
25-50%
75-100%
Total
Impact on distribution strategy, by commission in advance for sale of investment products Significant impact
Some impact
Minimal impact
No impact
Note: There are no observations for the 50–75% bracket for commission in advance for sale of investment products. Oxera 31 Retail Distribution Review proposals: Impact on market structure and competition
Impact on distribution strategy strategy, by current distribution through platforms 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0-25%
25-50%
50-75%
75-100%
Total
Impact on distribution strategy, by distribution through platforms Significant impact
Oxera
Some impact
32
Minimal impact
No impact
Retail Distribution Review proposals: Impact on market structure and competition
Impact on distribution strategy strategy, by current firm sales through IFAs/WOMAs 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Firm does not sell through IFAs/WoMAs
Firm sells through IFAs/WoMAs
Total
Impact p on distribution strategy, gy, by y firm sales through g IFAs/WOMAs Significant impact
Oxera
Some impact
Minimal impact
33
No impact
Unsure
Retail Distribution Review proposals: Impact on market structure and competition
Impact on distribution strategy strategy, by firm sales through non-independent advisers outside firm 100% 90% 80% 70% 60% 0% 50% 40% 30% 20% 10% 0% Firm does not sell through nonindependent advisers outside of firm
Firm sells through non-independent advisers outside of firm
Total
Impact p on distribution strategy, gy, by y firm sales through g non-independent p advisers outside firm Significant impact
Oxera
Some impact
Minimal impact
34
No impact
Unsure
Retail Distribution Review proposals: Impact on market structure and competition
Impact on distribution strategy strategy, by firm sales through non-independent advisers within firm 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Firm does not sell through nonindependent advisers within firm
Firm sells through non-independent advisers within firm
Total
Impact on distribution strategy, by firm sales through non-independent advisers within firm Significant impact
Oxera
Some impact
Minimal impact
35
No impact
Unsure
Retail Distribution Review proposals: Impact on market structure and competition
Impact on distribution strategy strategy, by current firm sales through execution only 100% 90% 80% 70% 60% % 50% 40% 30% 20% 10% 0% Firm does not sell through execution only
Firm sells through execution only
Total
Impact on distribution strategy, by firm sales through execution-only Significant impact
Oxera
Some impact
Minimal impact
36
No impact
Unsure
Retail Distribution Review proposals: Impact on market structure and competition
Impact on distribution strategy strategy, by firm category 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Lifeco
Investment manager
Other
Total
Impact on distribution strategy, by firm category
Significant impact
Oxera
Some impact
Minimal impact
37
No impact
Unsure
Retail Distribution Review proposals: Impact on market structure and competition
Impact on share of products distributed through independent advice, by firm sales 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Up to £50m
£50-500m
Over £500m
Total
Impact on share of products distributed through independent advice, by firm sales Increase significantly (more than 20%)
Increase a little (5% to 20%)
Remain unchanged nchanged ((-5% 5% to 5%)
Decrease a little (5% to 20%)
Decrease significantly (more than 20%)
Oxera
38
Retail Distribution Review proposals: Impact on market structure and competition
Impact on share of products distributed through i d independent d t advice, d i b by currentt di distribution t ib ti th through h platforms l tf 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0-25%
25-50%
50-75%
75-100%
Total
Impact on share of products distributed through independent advice, by distribution through platforms Increase significantly (more than 20%)
Increase a little (5% to 20%)
Remain unchanged (-5% ( 5% to 5%)
Decrease a little (5% to 20%)
Decrease significantly (more than 20%) Oxera
39
Retail Distribution Review proposals: Impact on market structure and competition
Impact on share of products distributed through independent advice, by firm category 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Lifeco
Investment manager
Other
Total
Impact on share of products distributed through independent advice, by firm category Increase significantly (more than 20%)
Increase a little (5% to 20%)
R Remain i unchanged h d ((-5% 5% tto 5%)
D Decrease a littl little (5% tto 20%)
Decrease significantly (more than 20%) Oxera
40
Retail Distribution Review proposals: Impact on market structure and competition
Impact on share of products distributed through restricted (non-independent) advice, by firm sales 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Up to £50m
£50-500m
Over £500m
Total
Impact on share of products distributed through restricted advice, by firm sales Increase significantly (more than 20%)
Increase a little (5% to 20%)
Remain unchanged (-5% to 5%)
Decrease a little (5% to 20%)
Decrease significantly (more than 20%)
Oxera
41
Retail Distribution Review proposals: Impact on market structure and competition
Impact on share of products distributed through restricted (non-independent) advice, by distribution through platforms 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0-25%
25-50%
50-75%
75-100%
Total
Impact on share of products distributed through restricted advice, by distribution through platforms Increase significantly (more than 20%)
Increase a little (5% to 20%)
Remain unchanged (-5% to 5%)
Decrease a little (5% to 20%)
Decrease significantly (more than 20%)
Oxera
42
Retail Distribution Review proposals: Impact on market structure and competition
Impact on share of products distributed through restricted (non-independent) advice, by firm category 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Lifeco
Investment manager
Other
Total
Impact on share of producst distributed through restricted advice, advice by firm category Increase significantly (more than 20%)
Oxera
Increase a little (5% to 20%)
43
Remain unchanged (-5% to 5%)
Retail Distribution Review proposals: Impact on market structure and competition
Impact on share of products distributed through execution only, by firm sales 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Up to £50m
£50-500m
Over £500m
Total
Impact p on share of products p distributed through g execution only, y, by y firm sales Increase significantly (more than 20%)
Oxera
Increase a little (5% to 20%)
44
Remain unchanged (-5% to 5%)
Retail Distribution Review proposals: Impact on market structure and competition
Impact on share of products distributed through execution only, by distribution through platforms 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0-25%
25-50%
50-75%
75-100%
Total
p on share of products p distributed through g execution only, y, by y distribution through g platforms p Impact Increase significantly (more than 20%)
Oxera
Increase a little (5% to 20%)
45
Remain unchanged (-5% to 5%)
Retail Distribution Review proposals: Impact on market structure and competition
Impact on share of products distributed by execution only only, by firm category 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Lifeco
Investment manager
Other
Total
Impact on share of products distrbuted by execution only, by firm category Increase significantly (more than 20%)
Oxera
Increase a little (5% to 20%)
46
Remain unchanged (-5% to 5%)
Retail Distribution Review proposals: Impact on market structure and competition
Impact on share of products distributed through wraps and platforms, by firm sales 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Up to £50m
£50-500m
Over £500m
Total
Impact on share of products distributed through wraps and platforms, by firm sales Increase significantly
Oxera
Increase a little
Stay the same
47
Decrease a little
Decrease significantly
Retail Distribution Review proposals: Impact on market structure and competition
Impact on share of products distributed through wraps and platforms, by distribution through platforms 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0-25%
25-50%
50-75%
75-100%
Total
Impact on share of products distributed through wraps and platforms, by distribution through platforms Increase significantly Oxera
Increase a little
Stay the same 48
Decrease a little
Decrease significantly Retail Distribution Review proposals: Impact on market structure and competition
Impact on share of products distributed through wraps and platforms, by firm category 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Lifeco
Investment manager
Other
Total
Impact on share of products distributed through wraps and platforms, by firm category Increase significantly
Oxera
Increase a little
Stay the same
49
Decrease a little
Decrease significantly
Retail Distribution Review proposals: Impact on market structure and competition
Likelihood that firm will collect and pass on adviser charges, by firm sales 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Up to £50m
£50-500m
Over £500m
Total
Likelihood e ood that t at firm will collect co ect a and d pass pass-on o adviser ad se c charges, a ges, by firm sa sales es Very likely
Oxera
Quite likely
Quite unlikely
50
Very unlikely
Unsure
Retail Distribution Review proposals: Impact on market structure and competition
Likelihood that firm will collect and pass on adviser charges, by firm category 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Lifeco
Investment manager
Other
Total
pass-on adviser charge, g , by y firm category g y Likelihood that firm will collect and p Very likely
Oxera
Quite likely
Quite unlikely
51
Very unlikely
Unsure
Retail Distribution Review proposals: Impact on market structure and competition
Likelihood that firm will offer a range of FGP FGP, by firm sales 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Up to £50m
£50-500m
Over £500m
Total
Likelihood that firm will offer a range of 'factory gate prices', by firm sales Very likely
Oxera
Quite likely
Quite unlikely
52
Very unlikely
Unsure
Retail Distribution Review proposals: Impact on market structure and competition
Likelihood that firm will offer a range g of FGP,, by y firm category 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Lifeco
Investment manager
Other
Total
Likelihood that firm will offer a range of 'factory gate prices', by firm category Very likely
Oxera
Quite likely
Quite unlikely
53
Very unlikely
Unsure
Retail Distribution Review proposals: Impact on market structure and competition
Oxera 54
% of providers indicating that this factor would be important Rank of importance: 1
Rank of importance: 2 Rank of importance: 3
Impact off likely persistenccy of clients sold to thrrough this advise er on range offered
of characteristics of route to Impact o ma arket on range offfered
er on range Impact of type of advise offered
Impact of average size of ttransaction e offered with the adviser on range
Impact of level of service rrequired by dviser on range o offered the ad
Impact of total volume of a all products ough an adviser on range sold thro offered
Impact of ttotal volume of th hat product sold thro ough an adviser o on range offered
Im mpact of value off individual prremium(s) on ran nge offered
Factors which are likely to influence the range offered for a particular product 50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Factors which are likely to influence the range offered for a particular product
Retail Distribution Review proposals: Impact on market structure and competition
Does firm have a standardised price list or negotiate individually with advisers, by firm sales 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Up to £50m
£50-500m
Over £500m
Total
D Does fi firm have h a standardised t d di d price i list li t or negotiate ti t individually i di id ll with ith advisers, d i by b firm fi sales l Only standard terms available to all Mainly standard terms, less than 25% of value sold through individually negotiated agreements with advisers Approximately half offered standard terms, by value sold Mainly y negotiated, g , less than 25% of value sold through g standard terms All negotiated Other Oxera
55
Retail Distribution Review proposals: Impact on market structure and competition
Oxera 56
Provvision of administtration/backoffice function ns to advisers/interme ediaries
Pro ovision of training g courses or ssimilar services to advisers
Fa acility to collect a and pass-on ad dviser charges/re emuneration
Qualityy of service/com mmunications with retail clie ents
Qualityy of service/com mmunications with intermedia aries
Historical fund m management performa ance
Product propositio P ons/features
Fin nancial strength of employer
Strength of conssumer brand
Quality o of marketing
Le evel of factory ga ate prices for intermedia aries
Factors which may be important elements of a firm’s firm s proposition post-RDR 60%
50%
40%
30%
20%
10%
0%
Factors which may be important elements of a firm's proposition post-RDR % of providers indicating that this factor would be important Rank of importance: 1 Rank of importance: 2 Rank of importance: 3
Retail Distribution Review proposals: Impact on market structure and competition
Will RDR lead to greater levels of competition between providers for advisers, by firm sales 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Up to £50m
£50-500m
Over £500m
Total
Will RDR lead to greater levels of competition between providers for advisers, by firm sales Significantly g y more competitive p The levels of competition will stay the same Significantly less competitive
Oxera
57
Slightly g y more competitive p Slightly less competitive Unsure
Retail Distribution Review proposals: Impact on market structure and competition
Will RDR lead to g greater levels of competition p between providers for advisers, by distribution through platforms 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0-25%
25-50%
50-75%
75-100%
Total
Will RDR lead to greater levels of competition between providers for advisers, by distribution through platforms Significantly g y more competitive p The levels of competition will stay the same Significantly less competitive Oxera
58
Slightly g y more competitive p Slightly less competitive Unsure Retail Distribution Review proposals: Impact on market structure and competition
Will RDR lead to greater levels of competition between providers for advisers, by firm category 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Lifeco
Investment manager
Other
Total
Will RDR lead to greater levels of competition between providers for advisers, by firm category
Oxera
Significantly more competitive
Slightly more competitive
The levels of competition will stay the same
Slightly less competitive
Significantly less competitive
Unsure 59
Retail Distribution Review proposals: Impact on market structure and competition
Will RDR lead to greater levels of competition between providers for consumers, by firm sales 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Up to £50m
£50-500m
Over £500m
Total
Will RDR lead to greater levels of competition between providers for consumers, by firm sales Significantly more competitive The levels of competition will stay the same Significantly less competitive Oxera
60
Slightly more competitive Slightly less competitive Unsure Retail Distribution Review proposals: Impact on market structure and competition
Will RDR lead to greater levels of competition between providers for consumers, by distribution through platforms 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% % 0-25%
25-50%
50-75%
75-100%
Total
Will RDR lead to greater levels of competition between providers for consumers, by distribution through platforms
Oxera
Significantly more competitive The levels of competition will stay the same Significantly less competitive 61
Slightly more competitive Slightly less competitive Unsure
Retail Distribution Review proposals: Impact on market structure and competition
Will RDR lead to greater competition between providers for consumers, by firm category 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Lifeco
Investment manager
Other
Total
Will RDR lead to greater competition between providers for consumers, by firm category Significantly more competitive
Slightly more competitive
The levels of competition will stay the same Slightly less competitive Significantly less competitive
Oxera
Unsure
62
Retail Distribution Review proposals: Impact on market structure and competition
Impact of RDR on length of holding of products by clients clients, by firm sales 100% 90% 80% 70% 60% 50% 40% 30% % 20% 10% 0% Up to £50m
£50-500m
Over £500m
Total
Impact of RDR on length of holding of products by clients, by firm sales Increase significantly Decrease a little Oxera
Increase a little Decrease significantly 63
Stay the same Unsure Retail Distribution Review proposals: Impact on market structure and competition
Impact of RDR on length of holding of products by clients clients, by distribution through platforms 100% 90% 80% 70% 60% 50% 40% 30% % 20% 10% 0% 0-25%
25-50%
50-75%
75-100%
Total
Impact of RDR on length of holding of products by clients, by distribution through platforms Increase significantly
Oxera
Increase a little
Stay the same
64
Decrease a little
Decrease significantly
Unsure
Retail Distribution Review proposals: Impact on market structure and competition
Impact of RDR on length of holding of products by clients clients, by firm category 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Lifeco
Investment manager
Other
Total
Impact of RDR on length of holding of products by clients, by firm category Increase significantly
Oxera
Increase a little
Stay the same
65
Decrease a little
Decrease significantly
Unsure
Retail Distribution Review proposals: Impact on market structure and competition
Impact of RDR on revenue revenue, by firm sales 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Up to £50m
£50-500m
Over £500m
Total
Impact of RDR on revenue, by firm sales Increase revenues significantly It will ill make k no diff difference Decrease revenues significantly Oxera
Increase revenues a little D Decrease revenues slightly li htl Uncertain of the impact 66
Retail Distribution Review proposals: Impact on market structure and competition
Impact of RDR on revenue revenue, by distribution through platforms 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0-25%
25-50%
50-75%
75-100%
Total
Impact of RDR on revenue, by distribution through platforms Increase revenues significantly It will make no difference Decrease revenues significantly Oxera
67
Increase revenues a little Decrease revenues slightly Uncertain of the impact Retail Distribution Review proposals: Impact on market structure and competition
Impact of RDR on revenue revenue, by firm category 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Lifeco
Investment manager
Other
Total
Impact of RDR on revenue, by firm category
Oxera
Increase revenues significantly
Increase revenues a little
It will make no difference
Decrease revenues slightly
Decrease revenues significantly
Uncertain of the impact
68
Retail Distribution Review proposals: Impact on market structure and competition
Impact of RDR on profitability profitability, by firm sales 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Up to £50m
£50-500m
Over £500m
Total
Impact of RDR on profitability, by firm sales Increase profitability significantly Decrease profitability slightly Oxera
Increase profitability a little Decrease profitability significantly 69
It will make no difference Uncertain of the impact Retail Distribution Review proposals: Impact on market structure and competition
Impact of RDR on profitability, profitability by distribution through platforms 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0-25%
25-50%
50-75%
75-100%
Total
Impact of RDR on profitability, by distribution through platforms
Oxera
Increase profitability significantly
Increase profitability a little
It will make no difference
Decrease profitability slightly
Decrease profitability significantly
Uncertain of the impact
70
Retail Distribution Review proposals: Impact on market structure and competition
Impact of RDR on profitability profitability, by firm category 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Lifeco
Investment manager
Other
Total
Impact of RDR on profitability, by firm category
Oxera
Increase profitability significantly
Increase profitability a little
It will make no difference
Decrease profitability slightly
Decrease profitability significantly
Uncertain of the impact
71
Retail Distribution Review proposals: Impact on market structure and competition
Changes g firm might g consider in relation to distribution strategy when RDR proposals are implemented 60
Count of resp ponses
50
40
30
20
10
0 Would firm consider acquisition of other distributors?
Would firm Would firm Would firm Would firm Would firm Would firm Would firm consider consider consider consider consider consider other consider none distribution distribution increasing acquisition of setting changes? of these? focus, or other product up/expanding arrangements arrangements with other with non entering, the providers? direct sales force? financial firms? traditional offshore or non distribution UK retail partners? investment market? Changes firm might consider in relation to distribution strategy when RDR proposals are p implemented No
Oxera
72
Yes Retail Distribution Review proposals: Impact on market structure and competition
Would firm consider setting up/expanding direct sales force, by firm sales 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Up to £50m
£50-500m
Over £500m
Total
Would firm consider setting up/expanding direct sales force, force by firm sales No
Oxera
73
Yes
Retail Distribution Review proposals: Impact on market structure and competition
Would firm change product focus focus, by firm sales 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Up to £50m
£50-500m
Over £500m
Total
Would firm change product focus, by firm sales Significantly increase focus on retail investment products M k no change Make h iin ffocus on retail t il iinvestment t t products d t Significantly decrease focus on retail investment products Oxera
74
Modestly increase focus on retail investment products M d tl decrease Modestly d focus f on retail t il iinvestment t t products d t Retail Distribution Review proposals: Impact on market structure and competition
Would firm change product focus focus, by firm category 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Lifeco
Investment manager
Other
Total
Would firm change product focus, by firm category Significantly increase focus on retail investment products
Modestly increase focus on retail investment products
Make no change in focus on retail investment products
Modestly decrease focus on retail investment products
Significantly decrease focus on retail investment products Oxera
75
Retail Distribution Review proposals: Impact on market structure and competition
Would firm plan to introduce additional share classes classes, by firm sales 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% % 0% Up to £50m
£50-500m
Over £500m
Total
Would firm plan to introduce additional share classes, by firm sales Yes - for all of them
Oxera
Yes - for most of them
76
Yes - for some of them
No
Retail Distribution Review proposals: Impact on market structure and competition
Would firm plan to introduce additional share classes classes, by distribution through platforms 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% % 0% 0-25%
25-50%
50-75%
75-100%
Total
Would firm plan to introduce additional share classes, by distribution through platforms Yes - for all of them
Oxera
Yes - for most of them
77
Yes - for some of them
No
Retail Distribution Review proposals: Impact on market structure and competition
Would firm plan to introduce additional share classes classes, by firm category 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Lifeco
Investment manager
Other
Total
plan to introduce additional share classes,, by y firm category g y Would firm p Yes - for all of them
Oxera
Yes - for most of them
78
Yes - for some of them
No
Retail Distribution Review proposals: Impact on market structure and competition
Number of additional share classes firm is planning to introduce, by firm sales 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Up to £50m
£50-500m
Over £500m
Total
planning g to introduce, by y firm sales Number of additional share classes firm is p 1 Oxera
2
5 79
Other Retail Distribution Review proposals: Impact on market structure and competition
Number of additional share classes firm is planning to introduce, by firm category 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Lifeco
Investment manager
Other
Total
Number of additional share classes firm is planning to introduce, by firm category 1
Oxera
2
5
80
Other
Retail Distribution Review proposals: Impact on market structure and competition
Appendix 2: Description of survey sample
Oxera
1
Retail Distribution Review proposals: Impact on market structure and competition
Survey − The analysis is based on over 1,040 survey responses for advisory firms, and just under 60 responses received i d ffrom providers. id
− The results presented in Appendix 1 were weighted, primarily in relation to the size of firm and the status of advisers—with d i ith respectt tto b being i either ith di directly tl authorised or appointed representatives. However, no large appointed representative firms responded. The results for appointed representative firms have, therefore, been grossed on the basis of all these firms being like smaller appointed representative firms. This is likely to overestimate the number of firms, the number of advisers and the proportion of the served market that are likely or very likely to exit the market. The number reported p here are, therefore, likely y to be an upper boundary of the potential impact.
− For the purposes of this study, a network was defined as a financial adviser with at least 20 advisers across at least five ARs, rather than the usual FSA definition (a network firm is one which has appointed five or more ARs. A firm with less than five ARs will also be classified as a network if its ARs have, between them, 26 or more representatives). This definition was used to segment the population of firms into economically similar business models models. − The surveys covered directly authorised intermediaries, networks, stockbrokers, appointed representatives, investment managers, life insurers, and banks.
Oxera
− No results are independently reported for the categories of tied or multi-tied advisers. The sample size for these two categories was too small to be able t guarantee to t that th t the th results lt would ld be b robust b t to t sampling error.
2
Retail Distribution Review proposals: Impact on market structure and competition
Distribution of firms firms, by firm status
Independent/Whole of market
Breakdown of population based on firm status
Implied response rate
92.2%
10.3%
3.0%
8.1%
4.9%
4.6%
100%
9.9%
Non-independent Other Total
Note: The implied response rate has been calculated as the proportion of firms that responded relative to the estimated population.
Oxera
3
Retail Distribution Review proposals: Impact on market structure and competition
Distribution of firms firms, by authorisation status
Breakdown of population based on authorisation status
Implied response rate
Directly Authorised
48.1%
18.3%
Appointed Representative
51.9%
2.3%
Total
100.0%
10.0%
Oxera
4
Retail Distribution Review proposals: Impact on market structure and competition
Distribution of firms firms, by firm revenue Breakdown of population based on firm revenue
Implied response rate
