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The Financial Conduct Authority is to ask fund managers to disclose a single, “all-in” fee to investors to help tackle weak price competition in the asset management sector as part of a radical overhaul.
The regulator today published the final findings of its asset management market study and announced a package of “remedies” it will take forward to address the concerns identified in its interim report into the asset management sector published earlier this year. The moves may also affect pension schemes and there will be a review of investment platforms. Investment consultants will also be reviewed.
The remedies the FCA says it will “take forward” fall in to three areas.
To help provide protection for investors who are not well placed to find better value for money, the FCA proposes to:
- strengthen the duty on fund managers to act in the best interests of investors and use the Senior Managers Regime to bring individual focus and accountability;
- require fund managers to appoint a minimum of two independent directors to their boards;
- introduce technical changes to improve fairness around the management of share classes and the way in which fund managers profit from investors buying and selling their funds.
To drive competitive pressure on asset managers, the FCA will:
- support the disclosure of a single, all-in-fee to investors;
- support the consistent and standardised disclosure of costs and charges to institutional investors;
- recommend that the DWP remove barriers to pension scheme consolidation and pooling;
- chair a working group to focus on how to make fund objectives more useful and consult on how benchmarks are used and performance reported.
To help improve the effectiveness of intermediaries, the FCA will:
- launch a market study into investment platforms;
- seek views on rejecting the undertakings in lieu of a market investigation reference regarding the institutional advice market to the Competition and Markets Authority;
- recommend that HM Treasury considers bringing investment consultants into the FCA’s regulatory perimeter.
Andrew Bailey, chief executive at the FCA said: “The asset management sector is important to the economy, managing the savings of millions of people and in the current low interest environment it’s vital we help people earn a return on their savings. We need a competitive sector, attracting investment into the United Kingdom which also works well for the people who rely on it for their financial wellbeing.
“We have listened carefully to the feedback we received in response to our report last November. We have put together a comprehensive package of reforms that will make competition work better and help both retail and institutional investors to make their money work well for them.”
The final report confirms the findings set out in the interim report published last year. This found that price competition is weak in a number of areas of the industry. Despite a large number of firms operating in the market, the FCA’s analysis found evidence of sustained, high profits over a number of years. The FCA also found that investors are not always clear what the objectives of funds are, and fund performance is not always reported against an appropriate benchmark.
“Finally, the FCA found concerns about the way the investment consultant market operates.”
Responses to the interim report from industry, investor representatives and others have helped the FCA develop the package of remedies.
The implementation of the remedies will take place in a number of stages, says the FCA. Some do not require consultation and are now being taken forward, it says. The FCA has published a consultation paper, focussing on the remedies related to governance and technical changes to promote fairness for investors. The FCA has also published the consultation on rejecting the undertakings in lieu today.
The FCA added that some remedies will require further work in light of other legislative initiatives, including MiFID II and will be consulted on later in the year. Finally some of the measures are dependent on the outcomes of the proposed working groups.
Full details of the timetable can be found in the final report.
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