The FCA’s recommendations for asset management have been broadly welcomed and are seen as reflecting the regulator’s determination to shake-up an industry it thinks is too profitable for the value it gives to customers.
The “remedies” the FCA is to administer fall into three areas:
• To help provide protection for investors who are not well placed to find better value for money.
To do this, the FCA will: strengthen the duty on fund managers to act in the best interests of investors and use the Senior Managers Regime to increase individual focus and accountability; require fund managers to appoint a minimum of two independent directors to their boards; introduce technical changes to improve fairness around the management of share classes and the way in which fund managers profit from investors buying and selling their funds.
Amanda Rowland, PwC partner, said: “The role of iNEDs [independent directors] has been of interest throughout the market study. While we have examples of this working well, it does not, in my experience, guarantee good governance in and of itself. There are risks that the cost of iNEDs is simply driven up without equivalent benefit to the end customer.
“The estimate of 480 new iNEDs over a 12-month period will be an expensive challenge for the industry [and could] disproportionately impact the smaller players in the market.”
Martin Gilbert, the chief executive of Aberdeen Asset Management, said: “I am a vocal advocate of the benefits of involving independent directors in fund governance, having seen how they help elsewhere in the world.”
He said Aberdeen would advocate going further than the FCA by introducing two independent directors on to the boards of UK open-ended fund ranges.
“This introduces a separate and independent level of oversight from that undertaken by the manager, with an exclusive focus on the interests of fund shareholders as distinct from firms own commercial interests – a point which FCA acknowledges in its consultation paper.”
Will Goodhart, CEO of CFA Society of the UK, a professional body, said: “Governance is the real story and here the FCA has got it absolutely right. There’s been too little independent oversight of the way in which investment vehicles are managed. Strengthening the governance requirements – dealing with the root cause rather than with the symptoms – will improve client outcomes.”
• To help improve the effectiveness of intermediaries.
To do this the FCA will: launch a market study into investment platforms; seek views on referring investment consultants to the Competition and Markets Authority (CMA); recommend that HM Treasury considers bringing investment consultants into the FCA’s regulatory perimeter.
Mark McNulty, head of investment solutions at JLT Employee Benefits, said: “We call on the FCA to introduce regulation of investment consultants as soon as possible and avoid further delays by referring to the [CMA].”
Danny Vassiliades, head of investment consulting at Punter Southal, said: “In our view, there is a clear requirement for remedies to increase competition, with the industry currently dominated by three big providers.”
He said putting the industry under the auspices of the FCA was “the right move”.
• To drive competitive pressure on asset managers.
The FCA will “support” the disclosure of a single, all-in-fee to investors; “support” the consistent and standardised disclosure of costs and charges to institutional investors; recommend that the DWP remove barriers to pension scheme consolidation and pooling; chair a working group to make fund objectives more useful and consult on how benchmarks are used and performance reported.
Keith Baird, director of financial services research at Cantor Fitzgerald Europe, said: “This final report is not confrontational, indeed the tone is quite friendly.” He noted that “the fact the FCA says it ‘supports’ action on moving to an all-in fee, rather than using firmer language, is supportive for asset managers”.
Some of the FCA’s proposals require further consultation.
©2017 funds europe
