Investment consultants are giving high ratings to asset managers that give them gifts and corporate hospitality, research carried out by the regulator has concluded.
The FCA’s asset management market study has identified a ‘statistically significant positive relationship’ between the number of high ratings given to an asset manager and the number of gifts and hospitality items recorded in a year.
The regulator accepts this relationship could be explained by investment consultants being more likely to accept hospitality if they are already considering rating one of the asset managers’ strategies or have already rated the firm’s strategies in the past and so have an existing relationship. But it says it will not rule out the possibility that consultants may have been influenced by their acceptance of gifts and hospitality and intends to examine this area more fully after it has published its interim report.
The regulator investigated whether the wider business relationships that exist between asset managers and consultants may have influenced the past ratings given by consultants. Asset managers, corporate groups containing asset managers and their pension schemes regularly purchase services from consultants such as the organising and hosting of investment conferences, data and consulting services covering areas such as retirement and HR, as well as direct investment consulting services.
The FCA’s sample of consultancies earned group revenues from asset management clients averaging £17m in 2015. Putting this in perspective, the FCA said consultants in its sample earned on average £45m from their investment advisory businesses in the same period.
The FCA found asset managers did not always receive ratings from the consultant providing the services, although a greater proportion of those purchasing services from asset managers received high ratings when compared to their peers who did not purchase these services. But the regulator did find a positive statistically significant relationship between the two that is not fully explained by the size of the investment management group.
The report says: “A number of investment consultants still continued to accept hospitality in 2015 including attending sporting and cultural events at the expense of investment management firms. Following the publication of our thematic review earlier this year which confirmed our expectations about providing these types of hospitality events, the levels of hospitality may reduce further.”