AM market study: Godfrey presses FCA on dropping all-inclusive charge and independent committees

Daniel Godfrey, the former Investment Association chief executive and co-founder of The People’s Trust, has questioned the regulator’s decision to drop an all-inclusive charge and to opt for independent board directors rather than an independent governance committee.

Speaking at a Transparency Task Force event today, Godfrey congratulated the regulator on what he described as a “very robust analysis”, but challenged FCA representatives on the move away from an all inclusive Ongoing Charges Figure (OCF) model towards a separate total expense ratio type figure that would sit alongside an annual management charge.

Godfrey questioned why the regulator had moved away from an all-inclusive charge, which was proposed in the interim report.

He also pressed the FCA on its decision to ignore calls for independent governance committees for asset managers to ensure value for money was being delivered and investors’ interests prioritised, arguing that the alternative chosen by the regulator, the requirement for two independent board directors, would mean they would spend more of their energy on internal governance issues at the expense of investor issues.

Godfrey said: “The reason I highlight this concern is because if you are on a fund board you are responsible for everything, not just value for money and best conduct. We have seen boards spend most of their time on internal governance issues and not the value for money issues.
FCA head of department, competition Robin Finer said: “The reason we have gone for this approach (on boards) is that it is part of a package. We thought it was proportionate way to go forward. The package sets out rules for the board to carry out checks to get to ensure they are giving value for money and will require them to report how they have considered that, and there is also the new senior manager responsibilities that apply to directors. So we think this means they won’t be able to ignore these issues, so we thought it was sufficient to have the independent board directors.”

FCA manager, competition department Becky Young said: “When we looked at the other costs and the OCS, we felt that managers know how to manage the other costs. It is more the transaction costs that we have concerns about. The bigger thing is getting the OCS figure and also then getting ex post disclosure to give a picture of what you paid and what you are going to pay the future.”

One delegate at the event questions have an independent directors on the board would have any impact with passive funds. The regulator responded that it had identified index tracking funds charging 100 basis points for the same service that could be found elsewhere for one 10th of the price.

VT Munro Smart-Beta UK Fund lead manager Rob Davies highlighted the fact that for smaller funds the appointment of two extra directors will be a significant expense. He also questioned whether they would need to be CFI-regulated.

Young said: “We understand the cost will be higher – we recognise that in the consultation paper. We are seeking views on whether the requirement for these two directors should be across the board or whether there should be a threshold so we suggest you feedback into the consultation on this point.

“Our assumption is that the cost will be charged to the fund. But it should deliver better outcomes. We have not set out specific qualifications for directors.. Firms should be able to identify suitable individual to take these roles.”