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FCA fines Henderson for “unfair” treatment of retail investors

Gavel_lawbooksThe UK’s Financial Conduct Authority (FCA) has fined Henderson Investment Funds Limited (HIFL) £1.9 million (€2.2 million) for charging retail investors inflated fees on two of its funds.

More than 4,500 investors were affected across the firm’s Japan Enhanced Equity and North American Enhanced Equity funds, which essentially became “closet tracker” funds, according to the financial regulator.

The treatment of retail investors was “substantially different” from institutional investors in these funds.

Mark Steward, executive director of enforcement and market oversight at the FCA, said: “The FCA requires firms to treat all its customers fairly, not just some customers. In this case, retail investors paid fees for active investment management they did not receive.”

The level of active management of the funds was reduced back in 2011 by the firm’s appointed investment manager Henderson Global Investors Limited (HGIL).

HGIL informed nearly all of the institutional investors affected by the reduction of active management in the funds and offered to manage these two funds for those investors for free but did not communicate the change in strategy to retail investors.

The FCA said HIFL charged retail investors £1,784,465 more than if they had invested in a passive fund.

Steward added: “For retail clients, the Japan and North American funds were in effect operating as "closet trackers" as the fees charged to them were inappropriate given the diminished level of active management. The matter is aggravated by the length of time HIFL took to identify the harm being caused to the retail investors and to fix it.”

A spokesperson for Janus Henderson said: “The FCA’s notice relates to events in the period 2011 to 2016 prior to the merger between Henderson Global Investors and Janus Capital Group in 2017.

“Janus Henderson Investors accepts the FCA’s findings and the financial penalty and has co-operated fully throughout the process.”

According to the FCA, the situation revealed “serious” weaknesses in HIFL’s systems and controls in its management, oversight, and governance.

Overall, 4,713 direct retail investors, 75 intermediary companies with underlying non-retail investors, and two institutional investors were affected by HGIL’s decision not to reduce their level of fees.

The fund manager has now disclosed the matter to all affected customers and compensated them for the additional costs incurred.

HIFL agreed to resolve the matter and qualified for a 30% discount under the FCA’s executive settlement procedures. Were it not for this discount, the FCA would have imposed a financial penalty of £2,668,547.40.

Janus Henderson said that since the incident systems and controls have been improved.

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