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Markets and Securities Services |
International
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The FCA Asset Management Market Study Interim Report
The interim report combines two interlocking
aspects of the FCA’s work. On the one hand, the
Report uses econometric analysis and raises issues
through a competition lens; on the other, several
other parts of the Report gather together policy
themes that have been more or less discussed by
the fund industry, commentators and consumer
groups, if not the FCA, since the financial crisis.
So transparency and the signals that investors
use to decide what to buy, or sell, are explored.
The FCA finds weak price competition, that
actively managed fund charges have not
reduced significantly over the last decade, that
there are price clusters at 75 and 100 bps and
that asset managers enjoy substantial margins.
Turning to the funds themselves the FCA has
concerns that objectives are not adequately
explained to investors, that some active funds
track to the market benchmark to an extent that
investors would be better off buying cheaper
passive funds and that anyway after costs on
average actively managed investments do not
outperform their benchmarks.
Though the FCA mentions the difficulties fund
managers have in switching investors in older,
more expensive legacy classes into clean share
classes, it offers little in the way of radical change.
In several other areas, however, the FCA is asking
whether much more radical change is warranted.
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Firstly, the FCA asks if fund governance needs
overhauling. Whether adopting a US mutual fund-
style board, adopting a majority independent
board or using the depositaries, the FCA is
looking for an investors’ champion to provide
far higher levels of independent assurance
about value of money and cost oversight. This
could embrace reviews of the fee charged by
the investment manager and of the transaction
costs incurred in trading in the capital markets.
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Secondly, the FCA asks, echoing the Financial
Services Consumer Panel, whether a move to
some form of all-in-one fee would be in investors’
interests. Variations on this theme would involve
the fund manager bearing more or less of the
risk of budget overruns and transaction costs.
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Thirdly, the FCA asks in several areas about
how better information can be provided to
investors and within that, whether signals that
identify underperformers could be found.
The FCA is asking for comments by 20
February 2017 and is expected to make final
recommendations for change in the second half of
2017. Many will be responding, not only with regards
to their UK funds but also with a PRIIPs lens on,
on how this will affect the competitive landscape
with passported-in EU funds (now and after Brexit)
and unit-linked business and investment trusts.
The FCA’s long-awaited interim report into the UK’s asset management and funds industry was
published on the 18 November 2016. While enquiring into institutional and retail (fund) business,
it also looks at some of the roles of investment consultants. It does not, however, go into the same
depth on distribution and excluded advisers; the RDR review due in 2017 must be a likely starting
point for a deeper consideration of advisers and other intermediaries.