Around mid-June this year, fund fees came into the spotlight again when the European Securities and Markets Authority (Esma) called for greater coordination between EU member states to prevent asset managers from overcharging retail investors.
Esma said funds were overcharging retail investors and urged more consistency on fees across the EU. What will this mean for UK asset managers once the Brexit transition is over?
Fees significantly reduce returns and asset managers may have to pay compensation to retail investors if fees are unjustifiable, Esma said, adding that fee levels had decreased only marginally in recent years.
The regulator has urged fund houses to identify and quantify all costs for funds in a bid to promote transparency. This would require asset managers to reveal when fees are paid to themselves, or to third parties such as brokers and administrators.
But once the Brexit transition period is over and the UK leaves the EU, what will this mean for UK firms operating in the bloc?
“After the end of the transition period, Esma and the EU27 NCAs [National Competent Authorities] will not have the ability to undertake supervisory convergence activity on the UK,” an Esma spokesperson tells Funds Europe.
Esma’s requirements for EU countries aim to make investment information more comprehensive and easily accessible for retail investors, allowing them to assess past performance and costs of products across the bloc.
These factors are similar to those addressed by the UK’s regulator, the Financial Conduct Authority (FCA), earlier this year, albeit by a different approach, according to Morningstar’s director of policy research, Andy Pettit.
UK fund boards, however, will have to go further than their EU counterparts with their Assessment of Value reports that the FCA now requires.
“Directors are in essence, compelled to wear the hat of their investors when conducting the assessment and conclude whether the service they provided represented good value for the fees they charged,” Pettit says.
Read the full article from our July/August issue here: The latest assault on fees
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