Investors Must Get Better Value

Investors Must Get Better Value.

The Financial Conduct Authority (FCA) has today published a review of competition in the asset management industry.

The regulator wants to see “greater transparency so that investors can be clear about what they are paying and the impact charges have on their returns”.   They also want “asset managers to ensure investors receive value for money through pursuing energetically their duty to act in their customers’ best interests”

The FCA found that:

• there is limited price competition for actively managed funds, meaning that investors often pay high charges. On average, these costs are not justified by higher returns
• 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
• fund objectives are not always clear, and performance is not always reported against an appropriate benchmark
• despite a large number of firms operating in the market the asset management sector as a whole has enjoyed sustained, high profits over a number of years with significant price clustering
• investment consultants undertake valuable due diligence for pension funds but are not effective at identifying outperforming fund managers. There are also conflicts of interest in the investment consulting business model which require further scrutiny

The FCA has proposed various changes to make competition work better.  These include:

• companies 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
• a number of measures aimed at helping retail investors identify which fund is right for them, such as requiring asset managers to be clear about the objectives of the fund, clarifying and strengthening the use of benchmarks and providing tools for investors to identify persistent underperformance
• making it easier for retail investors to move into better value investments
• point of sale and information and ongoing communication to be clearer
• exploring the potential benefits of greater pooling of pension scheme assets; and
• requiring greater and clearer disclosure of fiduciary management fees and performance
• looking at competition of investment consultants and financial advisers with a need to make adviser fees more transparent with a view to reducing advice costs as well as the use of platforms by intermediaries and value for money for investors.

Comment

We welcome the move.  For nearly 20 years we have campaigned for transparent fixed fees, clean fees and a ban on % charges. 

We do not see why an investor with £20,000 should pay double that in fees and charges compared to an investor with £10,000.  We understand the basics that £20,000 in market/share classes will cost more in dealing costs but that basic paperwork, time and delivery are basically exactly the same. 

For example, if you invest £10,000 or £20,000 in a pension fund, it takes exactly the same time to complete the paperwork and initial research, it is only the liability that is greater.  This is why we charge set fees and a risk fee where appropriate.