The FCA has published its interim report on the asset management market study which sets views on how well competition is working and what is the resulting outcomes for investors. The FCA’s interim key findings include:
- the UK’s asset management industry manages nearly £7tn of institutional and individual assets. Over three quarters of UK households with occupational or personal pensions use the services asset managers offer;
- the FCA found that price competition is weak in a number of areas of the industry. While the price of passive funds has fallen, active prices have remained stable. Despite a large number of firms operating in the market, the asset management industry has seen sustained, high profits over a number of years;
- investors are not always clear what the objectives of funds are, and fund performance is not always reported against an appropriate benchmark; and
- there are a wide range of investors in the institutional market. This includes many small pension schemes which rely heavily on the advice of consultants. The FCA also found concerns about the way the investment consultant market operates.
The FCA proposes a significant package of remedies that seek to make competition work better and protect those least able to actively engage with their asset manager, including:
- a strengthened duty on asset managers to act in the best interests of investors, including reforms that will hold asset managers accountable for how they deliver value for money, and introduce independence on fund oversight committees;
- introducing an all-in fee approach to quoting charges so that investors in funds can easily see what is being taken from the fund;
- helping retail investors identify the best fund for them by: (i) requiring asset managers to be clear about the objectives of the fund and report against these on an ongoing basis; (ii) clarifying and strengthening the appropriate use of benchmarks; and (iii) providing tools for investors to identify persistent underperformance;
- making it easier for retail investors to move into better value share classes;
- requiring clearer communication of fund charges and their impact at the point of sale and in communication to retail investors;
- requiring increased transparency and standardisation of costs and charges information for institutional investors;
- exploring with government the potential benefits of greater pooling of pension scheme assets;
- requiring greater and clearer disclosure of fiduciary management fees and performance;
- consulting on whether to make a market investigation reference to the CMA on the institutional investment advice market; and
- recommending that HM Treasury also considers bringing the provision of institutional investment advice within the FCA’s regulatory perimeter.
In terms of next steps, the FCA welcomes views on the potential remedies by 20 February 2017.
View FCA publishes interim report of asset management market study, 18 November 2016