UK regulator calls for radical shake-up of asset managers
Financial Conduct Authority demands fund managers present investors with all-in fee
The UK regulator has called for a radical shake-up of Britain’s £7tn investment market in a bid to stamp out conflicts of interest and restore savers’ trust in the asset management industry.
The Financial Conduct Authority told fund managers on Wednesday to overhaul their charging structures and improve governance standards following a near two-year investigation into competition issues in asset management.
Investment companies lobbied hard against many of the regulator’s proposed remedies outlined in an interim report last November that was deeply critical of widespread practices in the fund market and its treatment of retail investors.
But the watchdog has pressed ahead with its most controversial reform ideas, including forcing fund managers to present investors with an all-encompassing fee that includes trading costs.
This measure is expected to have a direct impact on asset managers’ profits and goes further than legislation in other large investment markets.
Daniel Godfrey, chief executive of The People’s Trust and former head of the UK’s Investment Association, said this measure was a “huge shock” for the industry. “It would be a massive change to their way of life,” he said.
The FCA has also requested that the government allows the watchdog to regulate the powerful investment consulting industry, which determines how the vast majority of UK pension schemes invest their money.
Andrew Bailey, chief executive of the regulator, said: “The asset management sector is important to the economy, managing the savings of millions of people and in the current low interest environment it’s vital we help people earn a return on their savings. We need a competitive sector, attracting investment into the United Kingdom which also works well for the people who rely on it for their financial wellbeing.”
The watchdog has intensified its focus on the asset management industry as fund managers increasingly take responsibility for overseeing the retirement savings of millions of UK workers.
More than three quarters of UK households rely on the investment industry, including more than 9m individuals saving for their retirement through workplace pension schemes, according to the FCA.
The UK watchdog’s report comes at a pivotal moment.
Britain quitting the EU has introduced fresh challenges for asset managers, including higher compliance costs, changes to how funds can be sold to non-UK investors and the future rights of foreign workers remaining in the country.
At the same, European countries are trying to gain an advantage over Britain’s withdrawal from the EU by stepping up efforts to lure UK-based fund companies to relocate staff to the continent.
The UK sector, which manages the second largest pool of assets globally after the US, also faces structural shifts as traditional active managers that charge higher fees for stock and market selection struggle to compete with better performing passive managers that track indices.
The FCA was highly critical of the sector when it released its interim report in November. It found investors were being short-changed by a sector bloated by fat profits earned by actively managed funds delivering sub-par returns. It also said investors were not getting value for money and the sector was rife with potential conflicts of interest.
The proposed remedies in Wednesday’s final report are subject to consultation.
The asset management sector covers fund managers, investment platforms, fund rating providers and investment consultants.