Charging firms to help their customers? The FCA blows it again

Meir Velenski is CEO of Velenski Financial Group, and has 30 years of senior level experience among large CFD and FX firms in London

With impending new rules coming in next year with MiFID II, the FCA once again gets it wrong. The notion that retail brokers that provide traders with “substantive” analysis or insight to a retail client, that would need to be paid for by an asset manager to avoid being classed as an inducement is banal to say the least.

Effectively, this relates to last weeks assertion by the FCA that retail clients should be charged for all analysis and brokerage services.

How detached can the FCA become?

The FCA is failing to understand what is needed in the marketplace and is demonstrating once again its lack of comprehension and touch with the retail trader and the host companies.

Let’s look back a little. To get a better understanding of where we are now let’s look back at the start of the retail sector and the provision by retail brokerages to traders. Back in the early 1990s with the expansion of internet, companies that existed back then where offering very few products with wide spreads.

In time, as technology developed and the appetite to grow the business developed, spreads became much tighter and technology allowed greater access to a live market for the retail trader.

The amount of money that has been invested and spent by these firms on getting what is now such a high quality product out to the retail marketplace has been huge. Surely , this has to be recouped.

Client retention and new business

Firms over these years have spent millions on marketing to new clients and trying to retain a very fickle database of existing clients. Additionally, many companies in the retail sector have offered in the past all types of incentives from bonuses, holidays, volume related gifts, expensive wine, and watches, all of which was done away with several years ago, as these firms have had to think hard how to keep within the rules and still manage to keep their customers turning a good amount of volume.

Seminars, market news, opinions

With the demise of what were very gimmicky incentives, retail FX companies have become experts and adding value to their clients’ experience. Expensive high quality research and seminars to attract clients have been offered.

The FX firms have hired some of the highest caliber minds to help them in this, most of whom are widely renowned CFA and CMT qualified market analysts with a litany of appearances on Bloomberg and CNBC behind them, which adds considerable credibility to the seminars produced by the companies.

All this costs money. This money is invested in the UK and provides jobs and revenue to the country. The benefit of all this investment is felt by the FX firms and of course drips down to the FCA and the government coffers.

The new proposed tax is just another poor idea and has some very problematic potential consequences. The FCA hiding behind some cloak of the righteous upholder of the greater good of the man in the street is actually likely to cause more damage than good.

The proposed requirement of a charge that must be paid to an external asset manager of 10-15bps on all FX/CFD firms that offer their clients any sort of in depth analysis is open to abuse.

There is no monitoring system in the world including the FCA, that can actually make sure that this is administered correctly. The small players that are looking for more revenue will have found an easy route to justify their charges further.

Think about it-the trader loses out again

The FCA will require all retail FX firms offering analysis to charge 10-15bps for any form of analysis or trading service, which would then be outsourced to an asset manager.

Not only will this produce unscrupulous houses to rip off their clients and state that the charge is for analysis, but it actually penalizes the well established honorable firms like IG, GAIN Capital or CMC Markets, to mention some of the companies with a large, established British client base, to charge their clients for all the extra hard-work these firms have refined in their offering.

Seminars

I have operated trading seminars globally, and these seminars are not cheap. They are paid for on the basis that there will be a 10-20% take up of new accounts then the seminar will have a chance of paying for itself and generating a good quality, sustainable client base.

Ok, now let’s look at it post the FCA new asset management charges. If I go to a seminar which is made up of existing and potential clients, and decided to charge the client the £100.00 per head for attending, how will this be related in value to the client?

Come on, let’s be serious!!!! Which client is going to pay and FX/ CFD firm entrance fees for attending an analysis seminar? It’s not going to happen, because the entire client onboarding process, and the provision of all of the right tools and information to make the best decisions is based on convincing the client that your company is the best firm to trade with.

After a company has convinced clients of that, imagine then saying “Oh by the way Mr Client there will be a charge of £100, Visa or MasterCard”?

Not only a lead balloon, but also a means of instilling distrust into potential clients.

What now?

The chance of the FCA understanding any of this is remote. The firms will have to establish a clear line of communication with the FCA to get this nonsense removed or stopped now. If not then it is clearly another indirect tax on all the work the firms have done in the last 25 years and is offensive to the retail trader.

There should be a consultation period and heavy pressure put on the FCA to rethink this carefully.