The Financial Conduct Authority (FCA) has found that actively managed funds have “limited” price competition and that some passive funds offer “poor value for money”.
The interim findings of the FCA’s asset management market study also stated that fund objectives were not always made clear by providers, while investment consultants were not effective at identifying outperforming fund managers.
“There are also conflicts of interest in the investment consultancy business that require further scrutiny,” said the FCA.
Danny Vassiliades, head of consulting at investment adviser Punter Southall, said the review was important and agreed there was a need for greater competition in the investment consultancy business.
He added that in recent years many active managers had not added value for their pension scheme clients.
Consultancy PwC’s UK asset management leader Mark Pugh said that the FCA’s findings were not “wholly unexpected”.
He also said PwC had expected the FCA to make use of its wide-ranging competition powers and today’s interim report suggested the asset management sector would feel the regulator’s “full force”.
Martin Gilbert, head of Aberdeen Asset Management, said that the FCA’s proposals will help asset managers help investors achieve their financial goals.
“The FCA’s suggested remedies will also help to strengthen confidence and competitiveness in the UK asset management industry, making it more attractive on the global stage by leading the way in best practice,” said Gilbert.
The FCA’s remedies that Gilbert is referring to include clearer communication of fund charges, increased transparency and making it easier for retail investors to move into better value share classes.
Will Goodhart, chief executive of the CFA Society of the UK, was also in favour of another FCA recommendation: an all-in fee so that investors could easily see what was taken from the fund.
“We have always been clear that investors should be able to see the costs that relate to the management or administration of their assets,” said Goodhart.
The FCA aimed much of its criticism at active funds. As for passive funds, the regulator noted there was stronger competition on price, but said it found “some examples of poor value for money in this segment”.
The FCA continues to take views from firms and the review will be concluded next year.
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