The UK Financial Conduct Authority regulator is recommending that fund managers offer an ‘all-in fee’ disclosure on charges to investors, which it says will be introduced anyway under the EU MiFID II regulations, after a final report on asset management performance and fees, which found weak price competition and, perhaps more damningly little evidence of investment outperformance against benchmarks once costs are stripped out.
The FCA’s final report, published today (June 28) however put off a decision to refer investment advisors to the UK’s Competition & Markets Authority until September over concerns that the UK market is too concentrated among three big providers: Mercer, Willis Towers Watson and Aon Hewitt, which represent about 80% of the advisory market.
On investment fees, the FCA said it wanted to break down a system where profitability of providers was high (average 36% per annum), and transparency and value for money lacking to end investors; notably because of opaque investment measurement information and a lack of economies of scale.
To do this, it says it is supporting the publication of fee templates that include estimates of transaction charges, as well as requirements for fund managers to ensure that so-called ‘box profits’ – the difference between the buy and sell price of in-house funds – be returned to investors.
It will also prompt fund managers to facilitate the switching of investors to the cheapest share classes. In addition, the FCA said it was convening a working group to look at the issue of investment benchmarks and investment fund performance reporting.
The report said the FCA now expected fund managers to act in their clients’ interest under its Senior Manager & Certification Regime, but would also add an additional element of stronger ‘governance’ into funds structures.
The report says: “We recommend that both industry and investor representatives agree a standardised template of costs and charges and we propose to ask an independent person to convene a group of relevant stakeholders to develop this further.Following this, we will work with these stakeholders to consider whether any other actions are necessary to ensure that institutional investors get the information they need to make effective decisions.”
Campaigners were split on reaction to the FCA report, with some critiquing it for a lack of regulatory bite.
Daniel Godfrey, former Head of the UK Investment Association, the fund management lobby group, now a Founder of The People’s Trust, a new long-term investment fund, said: “Investment managers will be relieved today. The FCA has delivered a report which spares them the harshest potential remedies flagged in their interim report last November. Asset management’s biggest problem isn’t the FCA. It’s the dysfunctional nature of the investment chain that prevents them fulfilling their potential to optimise returns for investors and drive economic growth.”
Gina and Alan Miller – the latter, a former fund management and hedge fund chief – now fee campaigners via the True & Fair campaign, said: “The UK investment industry has been ripping off the consumer for decades and it is time for the UK regulator to act now rather than have further consultations with the industry and its shoddy trade bodies.”
However, The Transparency Task Force, a lobby group, applauded the FCA’s work: “The FCA have held firm and this shows a very high level of commitment to their objectives to ‘protect consumers, enhance market integrity and promote competition.”
Pension industry body the Pensions and Lifetime Savings Association (PLSA) welcomed what it said was the FCA’s commitment to address the serious issues facing the market.
“We strongly welcome the FCA’s commitment to working with the DWP to remove barriers to consolidation and pooling,” it said.
Asset management giant Vanguard welcomed the report, with its Europe Managing Director Sean Hagerty calling it “an important moment for UK investors”.
Fund firm Thomas Miller Investments went to far as to say the industry’s pricing structure “at best looks like ‘price clustering’ and at worse looks like a cartel”.