UK’s Financial Conduct Authority kicks some asset management
The UK’s Financial Conduct Authority (FCA) says there is weak price competition in a number of areas of the asset management industry.
The FCA launched the market study in November 2015 to assess whether competition is working effectively. The UK’s asset management industry is the second largest in the world, managing almost £7 trillion of assets. Over three quarters of UK households with occupation or personal pensions use the services asset managers offer.
Andrew Bailey, chief executive at the FCA, says it wants to “see greater transparency so that investors can be clear about what they are paying and the impact charges have on their returns”.
In its interim report, published today (18 November), the FCA’s findings include:
- Limited price competition for actively managed funds, meaning that investors often pay high charges;
- There is stronger competition on price for passively managed funds, though the FCA did find some examples of poor value for money in this segment;
- Despite a large number of firms operating in the market the sector has enjoyed sustained, high profits over a number of years with significant price clustering.
The FCA has proposed a number of remedies. These include:
- Asset managers need to act in the best interests of investors, including reforms to hold asset managers to account for how they deliver value for money;
- Introducing an all-in fee so that investors in funds can easily see what is being taken from the fund;
- Making it easier for retail investors to move into better value share classes;
- More transparency and standardisation of costs;
- Exploring the potential benefits of greater pooling of pension scheme assets.
The FCA is also consulting on whether to make a market investigation reference to the Competition and Markets Authority (CMA) on the investment consultancy market and has recommended that HM Treasury considers bringing the provision of institutional investment advice within the FCA’s regulatory perimeter.
In addition, the FCA will carry out further competition work on the retail distribution of funds, particularly in relation to the impact financial advisers and platforms have on value for money.
The FCA says it is now seeking views about its interim findings and welcomes opinions from the industry.