Asset managers forced to break up fee bundles

Tim Wallace
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INVESTORS could get more control and more transparency over the fees they pay asset managers, under proposals unveiled by the City watchdog yesterday.

Financial Conduct Authority boss Martin Wheatley said he is worried that trust in the sector is being undermined by a lack of openness on fees and charges.

He said a consultation will be launched next month looking at how to unbundle fees in the sector, which tend to be opaque.

“Services are being bundled together, with eligible and non-eligible services being mixed. And when this information is provided back to the client, there is a lack of clarity or adequate transparency around how their commissions have been spent,” Wheatley said at the FCA Asset Management Conference.

“Of most concern is that firms are pushing the definition of ‘research’ by using client commissions to cover non-eligible costs and services.”

If improvements are not made he warned international competition could overwhelm the sector in London.

“If investors develop fears over charging, or lose confidence in asset management firms, they can and will look for solutions elsewhere,” he said.

The industry and analysts gave a cautious welcome to the plans.

The Investment Management Association said it hopes to be more accountable to investors.

And Nicola Higgs from City law firm Ashurst said it should also keep costs down.

“With more transparency, investors will be able to see what they pay for each service – as asset managers have to justify costs more, it should drive down fees,” she said.

■ Fees are something of a black box for investors under the current set-up.

■ That means they know how much they pay and they know the mix of services they get out, but they do not know how the money is spent along the way.

■ As a result, regulators think fees are being charged where they should not be.

■ For example, Wheatley said managers were paying more for research one year than the previous year, not because they used more research but simply because they carried out more transactions.

■ And they want to cut asset managers’ payments to firms for corporate access services from banks and brokers, which cost around £500m of commission in 2012. That is not eligible as a commission charge, he said, and also sees managers paying over the odds for the services.

■ The authorities want to stamp this out by forcing managers to be transparent, opening them up to more scrutiny from investors.

■ And the asset management industry has given the plans a cautious welcome.

■ Daniel Godfrey from the Investment Management Association said he would “explore all possible avenues”.

■ He said he wants to “deliver the greatest possible value for money, transparency and accountability to our customers”.