Fund managers will be given a duty to act in the best interests of investors, subjected to new independent governance and required to disclose a single all-in fee to investors, the FCA has said.
In its asset management market study final report, published today, the regulator has published a package of measures to improve transparency, increase competitive pressure on managers and drive better customer outcomes in the fund management sector.
These include proposals that would require fund managers to return any risk-free box profits to the fund and disclose box management practices to investors. It also plans to bolster the Senior Management Regime to increase personal responsibility of individuals.
The regulator says it wants to make it easier for fund managers to switch investors to cheaper share classes and is seeking views on whether it should consider introducing a phased-in sunset clause for trail commissions.
MiFID II will already introduce a requirement for a single all-in fee for investors using intermediaries, and the FCA says its proposals will complement this requirement. This figure will include the asset management charge and an estimate of transaction charges.
FCA has recommend that both industry and investor representatives agree a standardised template of costs and charges for institutional investors and says it will ask an independent person to convene a group of relevant stakeholders to develop this further.
The FCA also says it will consult on requiring managers to be clear about why or why not a benchmark has been used and require that their use of benchmarks is consistent across marketing materials. It also proposes to consult to clarify that where managers present past performance they must do so against the most ambitious target held out to investors.
The report also recommends that the Department for Work and Pensions (DWP) continue to work to remove barriers to pension scheme consolidation.
FCA chief executive Andrew Bailey says: “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. We need a competitive sector, attracting investment into the United Kingdom which also works well for the people who rely on it for their financial wellbeing.
“We have listened carefully to the feedback we received in response to our report last November. 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.”
KPMG head of asset management regulatory change Julie Patterson says: “Today’s report is only the end of stage one and we are now at the start of the rule-making process. The FCA has clearly listened and consulted as today’s remedies are more focused than those proposed in its interim report. It is interesting to note that the FCA’s further investigation on distribution has honed in on platforms which does not fully reflect the whole distribution chain.
“We welcome that the FCA recognises more explicitly the new rules on disclosure of fees and charges coming in under MIFID II and the PRIP KID. It’s important that the industry focuses on implementing properly those new rules for both funds and institutional investors. I’m also pleased to see that the FCA will introduce a sunset clause on the payment of trail commission, which comes several years after the introduction of the RDR, and the ability for fund managers to close the old commission-paying share classes.”