The financial watchdog has announced its plans to reform the asset management market, after carrying out a review of the £7 trillion industry over the past two years.
The Financial Conduct Authority (FCA) launched a competition investigation into the sector in 2015, and today the regulator made recommendations for remedies in three areas to address its concerns. These remedies include ramping up the duty on fund managers to act in the best interests of investors, introducing a single, all-in fee for investors, and the launch of a market study into investment platforms.
This is how the City reacted to the FCA's proposals:
Aberdeen Asset Management
"I strongly welcome the FCA’s Market Study as it provides clear guidance on how the FCA wishes the industry to operate in the future," said Aberdeen chief exec Martin Gilbert.
"Its recommendations to improve investor protections through better governance and to drive competition through greater transparency of fees and fund objectives are constructive and sensible. With investment risk increasingly being passed down from governments and employers to individuals, it is crucial that asset management evolves to meet this new world."
He added: "I am a vocal advocate of the benefits of involving independent directors in fund governance, having seen how they help elsewhere in the world. While supporting FCA’s general moves in this direction, Aberdeen would advocate going further than the FCA currently suggests by introducing two independent directors on to the boards of UK open-ended fund ranges.
"This introduces a separate and independent level of oversight from that undertaken by the manager, with an exclusive focus on the interests of fund shareholders as distinct from firms own commercial interests – a point which FCA acknowledges in its consultation paper. This finer point notwithstanding, I certainly agree that strengthening the onus on both investment managers and fund boards to consider value for money for investors will help to protect investors’ interests."
"Whilst the FCA is finally pursuing a pro-consumer agenda it is disappointing that they still appear to be dragging their feet on some key aspects. The UK investment industry has been ripping off the consumer for decades and it is time for the UK regulator to act now rather than have further consultations with the industry and its shoddy trade bodies," said SCM founding partners Alan and Gina Miller.
Consistent and standardised fee disclosure in a single number is vital for ordinary investors to make better choices. This should be mandated by the FCA to retail and institutional investors alike rather than just institutional investors or it is inevitable that differing formats by investment groups will make easy comparisons impossible.
"Whilst the FCA agrees with our long-held view that forthcoming legislation requires firms to provide aggregated and on-going information on all costs, there is no timeline to when the ‘future remedies’ to allow investors to ‘understand the role of the prominence and formatting of charges information’ will actually take place. Furthermore the FCA is only ‘considering’ the wider use of pounds and pence disclosure on other information sources."
"In terms of the numerous consultations and working groups, some appear unnecessary and rules should be brought in straight away to protect savers. More consultations opens the FCA to more self-interested lobbying from the industry and its anti-consumer trade bodies," they added.
"The fact that the FCA feels it has to state there will be an increased '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' shows how fundamental the dereliction of duty has been in the asset management industry."
"The asset management industry is ripe for reform. There are too many examples of fund groups making huge profits, while delivering poor returns for investors and it is clear that the regulator has its sights firmly focused on tipping this balance back towards the consumer," said Ryan Hughes, head of fund selection at AJ Bell.
"There are pockets of high quality active funds delivering great value to investors but there is a far higher proportion of active funds delivering poor value. The majority of new business goes into the high quality funds but the fact is there are hundreds of billions of pounds stagnating in poor performing funds. This needs to be unlocked and either moved into to high quality active funds or passive funds, a trend we have already started seeing."
Some of the measures confirmed today should improve transparency of charges and make it easier for investors to judge whether they are receiving good value and, if they aren’t, switch to a better option.
"The key now is in the implementation. An awful lot of what has been announced today by the FCA is still up for further consultation, so there is going to be little immediate change. It should also be remembered that the unbundling of fund charges since the Retail Distribution Review has had virtually no downward impact on active fund charges as it was expected to do," Hughes added.
"So, whilst today’s paper is encouraging, the key now is how long the additional consultations take and how quickly the proposed reforms are enforced."