Investors who may have been misled into paying higher fees are set to get £34m in compensation from asset managers.
The Financial Conduct Authority (FCA) said that a number of firms were returning money to investors, though not in any official FCA-backed scheme, after the watchdog launched a crackdown on “closet tracker” funds.
These are funds purporting to be run by managers employing an active stock-picking technique, usually charging higher fees, when in fact they simply track an index.
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“The practice of ‘closet tracking’ by fund managers, who have previously sold an investment product at a premium based on their expert market knowledge and superior stock picking skills, is a blatant misrepresentation and they should be ‘outed’ for their false sales and marketing, especially to retail clients,” said Kay Swinburne, UK member of the European Parliament and vice-chair of the EU’s Economic and Monetary Committee.
One unnamed asset manager in particular is facing enforcement action from the FCA, after the watchdog judged it had published “very misleading” material which warranted action going “a step further”.
“The FCA shining a light on these closet tracking firms is an important first step in raising the UK consumers’ trust and confidence in investment products across the board,” added Swinburne.
Where a breach of law, not just misrepresentation, has occurred it is only right that the FCA should use its full enforcement powers.
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Out of the 84 potential closet tracking funds which the FCA looked at, 64 must now change their marketing materials. The other 20 were deemed to adequately explain how they manage money.
The FCA turned the spotlight on closet tracking in its asset management review last year. The watchdog is set to produce a final set of proposals by the end of this month.
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