On 10 August 2023, the FCA published the findings from its review of processes Authorised Fund Managers (AFMs) use for assessments of value (AoVs) for the funds they operate. This is a follow-up to the feedback the FCA gave from its first review in July 2021.
In 2017, the FCA published its Asset Management Market Study, which found evidence of weak demand-side pressure on fund prices, resulting in uncompetitive outcomes for investors in authorised funds. Since then, the FCA has worked closely with industry to encourage a focus on assessment of value, to drive improved value for money for investors.
The review’s findings suggest that many firms have now fully integrated considerations on assessment of value into their product development and fund governance processes. The FCA notes that this greater focus has also driven changes in fees and charges, resulting in savings of costs to consumers amounting to millions of pounds.
However, there remain outliers, where action needs to be taken. This is particularly important in light of the Consumer Duty, which came into force on 31 July, under which firms are expected to deliver fair value for retail consumers.
Key findings from the review include:
- Examples of good practice include moving investors to clean share classes with no trail commission or cutting funds’ fees.
- Some firms’ independent non-executive directors did not provide sufficient challenge, with some accepting information provided to boards at face value without probing further.
- Significant differences between good and poor practice in how AFMs assess their funds’ performance.
- Firms putting too much emphasis on comparable market rates to justify their fees, rather than conducting an assessment using the full range of value assessment considerations.
- Some firms now have better processes for allocating costs but are reaching conclusions on AFM costs and economies of scale that do not take into account the information made available by that better process.
The FCA expects firms to consider these findings and to make improvements where required.