FCA calls for widespread reform of UK’s asset management sector
The UK’s £7tn ($9tn) asset management industry must reduce costs and improve returns, according to a report by the Financial Conduct Authority (FCA). The regulator’s asset management market study called for increased transparency and competition and said that investors must be given clearer information about costs. The FCA also said that companies should introduce a single “all-in fee” and greater consistency in charges. At least two independent directors should be appointed to the fund management boards. The proposed reforms will be implemented gradually, following consultation.
Britain’s £7tn asset management industry must introduce sweeping reforms to cut costs and improve returns for savers after years of raking in sustained, high profits, the City regulator has said. Publishing the final findings of its asset management market study, the Financial Conduct Authority said greater transparency and better competition were vital in a sector relied on by millions of people for their financial wellbeing.

The FCA said in its 112-page report that investors must be provided with clearer information on costs, helping them make the best available investment choices.

“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,” said Andrew Bailey, chief executive of the FCA. “We have put together a comprehensive package of reforms that will make competition work better and help both retail and institutional investors to make their money work well for them.”

To improve competition, the regulator said companies should charge a single “all-in fee”, replacing the current system, under which investors are charged a range of fees. To improve conditions for investors, funds should appoint at least two independent directors to their boards.

A study will also be launched into the investment platforms that offer a range of funds online, which knocked shares in Hargreaves Lansdown by almost 3%, the biggest faller in the FTSE 100.

But Daniel Godfrey, founder of the People’s Trust and a former head of the Investment Association, said: “Investment managers will be relieved today. The FCA has delivered a report which spares them the harshest potential remedies flagged in their interim report last November.”

Reforms would be implemented in a number of stages, the FCA said, with some of the measures dependent on the outcome of consultation. It also said it was not trying to favour passive funds – which track indices – over active funds.

The regulator had concerns about the way the investment consultant market operated, but did not immediately refer the industry to the Competition and Markets Authority, after receiving representations from the three big companies. But it is recommending that the Treasury gives it powers to regulate the sector.

It also appeared to prepare the ground to look at private equity and hedge funds. “Our original scope as set out in our terms of reference did not include alternative asset classes. We therefore did not focus our analysis on these. However, we did receive some feedback on certain alternative asset classes such as private equity and hedge funds as part of our institutional analysis,” the FCA said.

Sean Hagerty, the managing director for Europe at Vanguard Asset Management, said: “Costs matter. Every pound that investors pay in charges is a pound out of their potential returns, reducing their chances of being able to afford a comfortable retirement or save for a mortgage deposit.”

The fund management industry has been the subject of a number of reviews since the start of the millennium, including a 2001 review by Paul Myners – later to become Lord Myners – and one in 2012 by John Kay.