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UK asset managers told to show they offer value for money

Published 04/05/2018, 03:30 AM
© Reuters. The Canary Wharf financial district is seen from Greenwich Park in London
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LONDON (Reuters) - Asset managers must assess each year how much value for money they offer investors, Britain's markets watchdog said on Thursday, stopping short of tougher measures called for by critics of the 7 trillion pound ($9.84 trillion) sector.

The Financial Conduct Authority said that asset managers will have 18 months to prepare for a requirement from September 2019 to make an annual assessment of value, "as part of their duty to act in the best interests of the investors in their funds".

Fund managers will also have to appoint at least two independent directors to their boards, the FCA said in a statement.

These reforms build on the watchdog's sweeping review of Britain's asset management sector published last June that found evidence of weak price competition.

That review was criticized for shying away from tougher requirements on fee transparency.

The FCA on Thursday also launched a further consultation on remedies related to funds providing better information about their products, covering how fund objectives can be expressed more clearly to investors and benchmarks the fund uses for tracking performance.

This would make life harder for so-called "closet trackers" or funds which say they actively chose investments - and therefore charge higher fees. Tracker funds which follow a well-known benchmark, such as the FTSE100 index, charge lower fees.

The FCA said the chair of an asset management firm's board will become directly accountable to regulators for assessing value for money and ensuring that independent directors are nominated.

Asset managers will have a year to comply with changes to how they profit from investors buying and selling their funds - known as box profits - and with steps that make it easier for investors to shift into cheaper share classes, the FCA said.

"Today’s announcements are an important part of a package of measures that, combined, aim to achieve a fair, transparent, open and accountable market," said Christopher Woolard, the FCA's executive director of strategy and competition.

Kevin Doran, chief investment officer at broker AJ Bell, said the asset management industry was ripe for change to give investors better choices.

© Reuters. The Canary Wharf financial district is seen from Greenwich Park in London

"For far too long, many fund providers seem to have forgotten just whose money it is they manage, hiding behind vague objectives and excessive charges," Doran said.

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