FCA calls for asset management reform

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28 Jun 2017

Asset managers should simplify costs, improve governance and face greater competition, the Financial Conduct Authority (FCA) has said.

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Asset managers should simplify costs, improve governance and face greater competition, the Financial Conduct Authority (FCA) has said.

Asset managers should simplify costs, improve governance and face greater competition, the Financial Conduct Authority (FCA) has said.

These are the main findings of a two-year probe by the watchdog into the asset management industry. The review was launched to help people make better choices in how they save for their retirement.

The FCA unveiled a package of reforms on June 28 designed to increase competition and transparency in an industry that manages the retirement funds of British households. This builds on November’s interim update on the study.

The review found that investors are not always clear what a fund’s objectives are and that performance is not always measured against an appropriate benchmark.

In response the regulator wants to see changes, such as asset managers charging a single “all in” fee, which incorporates trading costs.

The other recommendations include using standardised benchmarks to help investors compare funds and asset managers having at least two independent directors in the boardroom.

Counter-productive? 

Bob Campion, a senior portfolio manager at Charles Stanley, warns that the FCA’s package of reforms has unintended consequences, such as raising costs for the industry. This, he says, could prove counter-productive to the FCA’s goal of improving value for money.

The People’s Pension director of policy and market engagement Darren Philp believes more needs to be done to deliver tangible change for all retirement savers.

“We are concerned that the FCA isn’t going as far as producing a standard, cross-industry template but is relying on the industry to take this forward,” he added. “This could make it difficult to compare costs and we firmly believe that mandatory standardisation is the way forward.”

Aon Hewitt’s head of UK investment consulting, Tim Giles, welcomes the single all-in fee, but believes it could favour short-term investors over long-term investors such as pension funds.

The review also reiterated concerns on how the investment consultant market operates. The FCA is considering whether to refer the industry to the Competition and Markets Authority or not.

Aon Hewitt chief executive for EMEA Andy Cox believes that investment consultants should be regulated by the FCA, a move that would raise standards across the industry.

JLT Employee Benefits’ head of investment solutions, Mark McNulty, also wants to see the FCA regulate investment consultants.

“Bringing investment consultants into its regulatory perimeter will improve competition and value for money for clients,” he added. “The FCA will likely expect that consultants measure the quality of their advice so that clients can assess their performance relative to the costs they are paying for advice.”

A marathon not a sprint 

One of the highlights of the report for Pensions and Lifetime Savings Association (PLSA) director of external affairs Graham Vidler was the support for removing barriers to consolidation in the pensions industry.

He added that the PLSA looks forward to working with the FCA to make the investment management sector work in the best interests of pension schemes and its members.

Andrew Glessing, head of regulation at asset management consultancy Alpha FMC, points out that the FCA acknowledges its reforms will not happen overnight.

“The emphasis on further consultation recognises that the industry will need time to adapt and there is more detail to be hammered out, especially when it comes to ensuring no overlap or inconsistency between, for example, this basket of remedies and MiFID II,” he said.

“Consultation will take time but this shows just how serious the regulator is about passing its full agenda. This is a marathon not a sprint, but the FCA clearly intends to go the distance.”

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