The FCA has published the final report of its asset management market study.

The final report confirms some of the findings set out in the interim report published on 18 November 2016, in particular the FCA’s assessment regarding competition in the industry, communications with investors and practices in the investment consultancy sector generally. The FCA proposes a package of remedies to address problems identified in the study. While some remedies are far-reaching, the FCA has delayed some key decisions and the detail of some of the proposed requirements is yet to be defined.

The headlines:

  • Investment consultants to be regulated: the FCA recommends that investment consultants are regulated and asks the UK Government to do this through amendments to the Financial Services and Markets Act 2000 and its related legislation.
  • Proposed FCA Handbook changes on fund governance: the FCA proposes measures to improve “fund governance”. It proposes that authorised fund managers be required to appoint independent non-executive directors. It also proposes to strengthen the requirement for fund managers to act in the best interests of investors through a new prescribed responsibility for fund managers in the Senior Managers and Certification Regime. The regulator will consult on the prescribed responsibility later this year.
  • Proposed measures to facilitate share class switching: the FCA proposes that fund managers consider whether their charges for switching are reasonable. The FCA also proposes amendments to the existing guidance on “changing customers to post-RDR unit classes” (Finalised Guidance 14/4: changing customers to post-RDR unit classes) to specify when a fund manager can undertake a mandatory conversion to a better value share class.
  • Delay to proposals on a single all-in fee: while the FCA supports the introduction of a single all-in fee, the regulator stopped short of any immediate rule changes. Instead, the FCA is considering whether to consult on the presentation of information on costs including consistency between point-of-sale and ongoing disclosures later during the year.
  • No immediate Competition and Markets Authority (CMA) referral for investment consultants: the FCA has postponed until September any decision to refer the investment consultancy sector to the CMA for investigation.

In all, the final report and remedies therein are neither as onerous nor as sweeping as the industry had feared. However, the final report includes two consultation papers and cites three consultations to follow as well as the September decision on any CMA referral for the investment consultancy sector. The final report also states that the FCA will shortly commence a new study on consumer and intermediary “investment platforms”. All this means much work ahead for the UK asset management sector with both government and the regulator.

The Alternative Investment Management Association has published a response to the FCA’s asset management market study:

“While our industry has not been the primary focus of this study, we do of course support the goals of increased transparency and better alignment of interests between fund managers and investors that are at its core. As our own research has found, alternative asset managers actively discuss with institutional investors about how to deliver the best possible value for money. Dynamic fee structures which include high watermarks, hurdle rates, rebates and differentiated fees according to the size of investments or the length of lock-up periods show that the industry is receptive to investor requests for ever-closer alignment. We look forward to working with the FCA on the next steps in this process.” – Jack Inglis, CEO, AIMA.

The Investment Association has also responded:

“Our industry looks after pensions and investments for millions of UK households, helping them to lead more prosperous lives into retirement. With this role comes significant responsibility. We strongly support the FCA’s objective of ensuring our industry serves its customers in a competitive, accountable and transparent manner.

‘Many of the key recommendations work with the grain of European legislation already in the pipeline to introduce more clarity and transparency for consumers. We will work closely with the FCA as it looks further into the detail of how to present costs and charges in the clearest way for savers and how it will develop more independent oversight of investment funds in a way that is effective and proportionate.

‘We welcome the regulator’s recognition of the industry’s work to date on developing a consistent and transparent disclosure code for charges and costs which can be built on further with consumer groups. The FCA has listened to our calls to make it easier for savers to switch between share classes, which we welcome.

‘Asset managers compete every day to attract clients and investors and are focused on delivering the best outcomes for them. Our priority now is to have a meaningful dialogue with the regulator about the implementation of the recommendations, to ensure savers are getting the best possible deal. A pragmatic timetable is key to achieving this, given the major regulatory changes already in the pipeline and the preparations for Brexit.”

View Asset management market study, 28 June 2017

View Consultation Paper 17/18: Consultation on implementing asset management market study remedies and changes to Handbook, 28 June 2017

View AIMA’s response to FCA’s asset management market study, 28 June 2017

View IA responds to the FCA asset management market study final report, 28 June 2017