MARTIN Wheatley, managing director of the Financial Services Authority, yesterday fired a warning shot across the bows of the asset management industry by indicating active management charges will face increased scrutiny when new regulators take power next year.
Wheatley, set to lead FSA replacement the Financial Conduct Authority when it launches in the first quarter of 2013, signalled the new body will address hidden fee charges and the lack of competition in active asset management firms in a bid to ensure consumers are put before profits.
“It is clear there is price competition between active and passive approaches, but for actively managed products the levels of charging appear broadly similar,” he told an audience in London yesterday.
“If there is misdirected competition, there is scope for wide scale consumer harm.”
Adding that the industry competed too much on future fund performance which cannot be measured, he said that the market should instead start competing on “immediately measurable aspects”, like fund management fees.
“We will ask firms to look at how they plan their products, how they plan their distribution and how they work once they are sold,” he said
The FCA, which will sit alongside the Prudential Regulation Authority as twin supervisors to replace the FSA, will have wide ranging powers when it comes into force.
These include the ability power to oversee the design of financial products and ban them if they are deemed unsuitable for investors.
Campaigners for more transparent fees yesterday welcomed Wheatley’s comments and his bid to tackle the fee disclosure issue.
True and Fair Campaign co-founder Gina Miller said: “It is high time a financial regulator in the UK took control of the industry and demanded a better deal for consumers and action on the issue of fund charges and transparency of fees. We warmly welcome Martin Wheatley’s statement.”
Research from Which? shows that a 1.67 per cent total annual cost in running an investment fund, the industry average, would cut returns on money invested by 27 per cent if you invested £10,000 over a 20 year period.