Competitive value

'CFA UK members indicated that they view the UK market for investment management products and services as competitive or highly competitive.'

Competition contributes to value generation. In theory, rivalry in a market, the threat of new entrants or product substitution, supplier power and buyer power combine to encourage innovation and price competition and will influence the degree of concentration in a market.

In a recent CFA UK member survey, close to 90% (87%) of respondents indicated that they view the UK market for investment management products and services as competitive or highly competitive. But the survey’s respondents also indicated that they perceived barriers to entry in asset management as high (58%) and clients’ ability to assess value in asset management as low (55%).

In response to the question ‘Is the current market for investment management products and services sufficiently efficient and competitive to operate in clients’ best interests?’ Our members responded with 39% yes, 33% no, and 28% unsure. These survey results suggest that the society’s members believe that they work in a competitive industry, yet one in which competitive forces are impeded. Members appear to believe that investment firms compete aggressively across different segments of the market, differentiated by firm type, client type and product type, but that barriers to entry are getting higher (as scale and the ability to sustain the appropriate regulatory and operational infrastructure become more critical) and that clients and/or their representatives find it difficult to assess the relative value that investment managers will provide ex ante.

Investment professionals believe that firms are willing to control costs along the value chain and can control many relevant costs. Data demonstrates that asset managers have been able to reduce the costs of funds – both active and passive – to investors’ benefit. Technological advances have been effectively harnessed by the industry in many aspects of the investment and administration process to the benefit of end clients both in terms of cost, clarity and efficiency. However, there are areas where an asset manager is not able to exert full control such as distribution and management of the growing regulatory and compliance burden (a major area of headcount increase).

Stakeholders more broadly believe that the market is competitive where buyers have sufficient power to attract competition, but note that buying power in the retail sector is diffuse and that the sector is not as price sensitive as might be expected given the certain impact of costs on returns.

Read more in our report.