Fund management firms are facing a shakeup after the City regulator published a hard-hitting critique of the “sustained, high profits” the industry has earned from savers and pension funds over the years.
The major companies, which manage £7bn of assets, should charge a single fee, the Financial Conduct Authority said, so investors could see how much they were being charged. The regulator said it would also consult on the need for a competition investigation into the consultants that advise pension funds on which fund manager to select to look after their assets.
It is the first time the FCA has used its powers to suggest a recommendation to the Competition and Markets Authority. It recommended a review into the investment consultant market in which three firms, Aon Hewitt, Mercer and Wallis Towers Watson, have a 60% market share.
Much of the FCA’s year-long review was into the wider asset management industry which it found left investors unclear about the objectives of funds, and performance which was not always measured against an appropriate benchmark.
Andrew Bailey, the FCA chief executive, said: “Asset managers are responsible for the savings of millions of people in the UK, making decisions which affect their financial wellbeing both now and in the future. In today’s world of persistently low interest rates, it is vital that we do everything possible to enable people to accumulate and earn a return on their savings which can meet their lifetime needs.
“We want to see greater transparency so that investors can be clear about what they are paying and the impact charges have on their returns. We want asset managers to ensure investors receive value for money through pursuing energetically their duty to act in their customers’ best interests. The remedies that we are proposing today aim to achieve these outcomes.”
As well as suggesting an “all-in fee” so investors can see what they are paying, the FCA suggested ideas aimed at retail investors who it said needed better ways to identify which fund was right for them. Retail investors should find it easier to move into better-value funds, the FCA said.
Martin Gilbert, the chief executive of Aberdeen Asset Management, said the FCA’s report would bring a “sense of urgency, to confronting some key industry issues impacting customers”. Its shares were little changed on the stock market.
Publication of the report removed the uncertainty that had been clouding the industry for the past year while the review was under way. “Although the FCA’s findings present some serious challenges for the asset management industry, the report puts an end to a source of speculation and uncertainty that has been the leading worry for asset managers, even with Brexit,” said Owen Lysak, a senior associate at Clifford Chance.
The UK leaving the EU could have significant consequences for the asset management industry, which uses a “passport” to operate across the current 28 member states.
The fund management industry has been the subject of a number of reviews since the start of the millennium, including a 2001 review by Paul Myners – later to become Lord Myners – and one in 2012 by John Kay.
