INVESTMENT managers often spend their commission on data and services which are not allowed under the rules and in conflict with the interests of the clients that pay those fees, the Financial Conduct Authority warned yesterday.
It wants to force brokerages to give clients more information on where their money is spent and more closely monitor firms to make sure they stick to the rules.
The dealings commission is supposed to pay for costs like management bills and research, rather than core operating costs.
But the FCA said it has found evidence of the commission being spent on market data which is not classed as research under regulatory definitions and could be subsidising other parts of the business.
“We want to encourage investment managers to control costs on behalf of their customers with the same rigour as they pursue investment returns,” said the FCA in its consultation paper, stressing the move is in line with its long-term drive for more transparency.
Analysts welcomed the proposed changes and said they could shift the focus of the whole research industry.
“Many in the asset management world see the current system as simply not fit for purpose. A market rigged to think short term will put pressure on company executives to behave accordingly, which is often against investors’ interest,” said Berenberg Bank’s Andy McNally.
“Widely available, high-quality research that is subjected to market scrutiny is an essential part of the equity investment chain.”