The final findings have been released today from the FCA’s market study into the asset management sector. This builds upon the concerns identified in the interim report last year and provides a number of remedies to take forward to address these issues.
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.”
This final report confirmed the findings highlighted in the interim report last year. These included identifying weak price competition in a number of areas of the industry. The FCA found evidence of sustained, high profits over a number of years, despite a large number of firms operating in the market. It 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. The FCA also found concerns with regards to how the investment consultant market works.
Based on addressing these issues and taking into account the responses to the interim report from industry, investor representative and others the FCA have been able to develop a package of remedies. These remedies being taken forward by the FCA fall into three main 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 to this;
– 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.
These remedies will of course be required to be implemented in stages, and the final report includes a timetable detailing these.
You can access the full FCA report here.