UK’s FCA Raps Fund Management Companies For High Prices

UK’s financial regulator Financial Conduct Authority (FCA) has released its interim report on the UK asset management industry, where it has said that lack of proper competition was resulting in investors having to still pay unreasonably high charges.

The regulator launched a market study in November 2015 into the £7 trillion industry to see if customers were receiving good value for their money, as customers were looking for better avenues for investments in the prevailing low interest rate regime.

The report said that the industry had been enjoying high profits for a long time with a lot of price clustering despite the industry having adequate competition. It also pointed out that fund management companies had cost levels that were not justified by the returns.

The FCA

According to analysts, the industry typically has operating margins of 30-40 percent with some enjoying rates even higher than that. The FCA has recommended a number of measures to address the issues identified including having an all-in fee that is more transparent, steps to ensure that the asset managers are held accountable for results as well as steps to ensure that they act in the best interests of the investors.

In a statement Andrew Bailey, the new head of the FCA, said

In today's world of persistently low interest rates, it is vital that we do everything possible to enable people to accumulate and earn a return on their savings which can meet their lifetime needs.To achieve this, we need to ensure that competition in asset management works effectively to minimize the cost of investment

The report has criticized financial advisors and investment managers saying that they have not been effective in identifying high performing funds and for having conflicts of interest. The FCA’s report also offers other suggestions that would help investors in making a better choice. The report recommends that funds managers be clear about the objectives of the fund, provide tools for investors to spot underperforming funds as well as enhance the use of benchmarking.

Under the new rules, companies will need to ensure that there is clarity on the charges in its communications with customers along with ensuring that there is standardization and transparency of costs. It is also requiring regular communications with the investors on their investments. The report has also asked fund management companies to explore if pooling of pension assets can deliver better value.

---