The review of 18 fund managers between July 2020 and May 2021 found most had not implemented Assessments of Value (AoVs) arrangements that met FCA standards.

The FCA requires authorised fund managers to carry out the reviews, which assess whether fund fees are justified by the value provided to investors, at least once a year. Details of the assessments must be reported to the investors along with a clear explanation of any action that will be taken if they find the charges paid are not justified.

The FCA review found that, while some had been conducting AoV assessments well, too many fund managers often made assumptions that they could not justify to the regulator, undermining the credibility of their assessments.

When considering a fund’s performance, many firms did not consider what the fund should deliver given its investment policy, investment strategy and fees. The regulator said firms spent a “disproportionate amount of time” looking for savings in administration service charges that cost investors relatively little compared with the time spent reviewing the costs of asset management and distribution that typically cost investors much more.

Other firms did not meet the standards expected by the regulator by using ”poorly designed processes” that led to incomplete assessments of value (for example failing to assess elements such as fund performance, AFM costs and classes of units, or failing to perform assessments at share class level).

The FCA said it was disappointed with the review and that it expects “more rigour” from fund managers when assessing value in funds.

The regulator intends to review firms again within the next 12 to 18 months to assess how firms have reacted to its feedback. It said should it find firms are still not meeting the standards it expects it will “consider other regulatory tools”.