Monday 4 February 2019 12:29 pm

Asset management firms face overhaul of fund disclosure after FCA publishes market study

Asset management firms must provide greater clarity for investors to make more informed decisions, the UK’s financial regulator has said.

The Financial Conduct Authority (FCA) said today that managers must make fund objectives and investment policy descriptions more useful to investors, and explain how and why funds use particular benchmarks.

Read more: A quarter of high net worth investors keep 50 per cent of savings in cash rather than invest

Funds that do not use benchmarks will be expected to explain how investors should assess that fund's performance, while performance fees will be calculated after all other charges have been deducted. 

"Objectives are not always as clear and helpful to customers as they could be," the FCA's Asset Management Market Study report said. 

"We expect fund managers to explain what their funds are doing in consumer-friendly language. 

"Clear and helpful objectives should mean better informed consumers making decisions to invest in funds that are more suited to their individual needs and expectations."

The new rules on benchmarks will come into force on 7 May for new funds and on 7 August for existing funds. Performance fee rules will also be introduced on 7 August. 

The FCA’s executive director of strategy and competition Christopher Woolard, said: “We’re working to make competition work better in the asset management market and protect those least able to actively engage with their investments.

“Today’s remedies build on those we’ve already introduced and will make it easier for investors to choose the best fund for them."

Read more: Number of funds generating top returns plunges in torrid investment environment

Hargreaves Lansdown senior analyst Laith Khalaf said: “Good communications are vital to helping investors make informed investment decisions. Clearer fund objectives, combined with better disclosure of benchmarks, will go some way to achieving that goal.

“Using simple language that’s easy to understand is also a key challenge for an industry that all too often finds itself swamped in jargon.”