Fund management charging is set to fall into the regulatory spotlight, as the Financial Conduct Authority’s Rory Percival acknowledged that poor disclosure by fund managers was hampering adviser due diligence and would therefore be examined as part of an upcoming review.
Speaking at a conference organised by the Institute of Chartered Accountants in England and Wales, Mr Percival said as fund charges are not clear it is currently challenging for advisers to find out the information they need to do proper due diligence.
He said the regulator will publish a paper broadly looking at disclosure of charges, including fund management charges.
Mr Percival told delegates that the regulator’s due diligence thematic review would begin work covering all facets of the process of assessing suitability in the new year, but would not be publishing results until well into 2015.
The news follows the publication this morning of a damning Financial Services Consumer Panel report calling for a “radical” new single investment charge to force funds to disclose a range of hidden fees.
Fund managers currently pass various types of charges on to investors by paying for them directly out of the fund’s investment pool, including trading costs, commissions for brokers, legal and administrative costs, taxes and their annual management charges.
Pressure appears to be building on fund managers as the findings have been enthusiastically supported by high profile campaigners, as well as a number of independent consultants.
On due diligence generally, Mr Percival stated assessments should not be carried out just to keep on the right side of the FCA. He said due diligence was “so you know products well enough to be able to do the right thing for your clients”.
He added: “Sometimes we see a ‘retrofitting’ of due diligence; a firm has already decided on one way of doing something and carries out a review in order to justify its decision... [W]e’re not keen on that tick-boxing mentality”.
Answering questions from the audience about the perceived need for long and time consuming suitability reports, Mr Percival responded that many the FCA sees are just repetitive or poorly structured.
“Some appear to be trying to communicate the firm’s perspective than giving relevant information... I would suggest shorter, more personalised letters to clients, with the more generic information provided in an index.”
Graeme Price, head of strategic partnerships at UBS, argued that product providers needed to be more expressive on charges and also called for transparency around the charges levied by consultancy firms.
Len Clarke, a compliance partner at Smith and Williamson, asking for content from the providers’ technical rather than marketing teams, to help advisers make informed decisions.
Eric Clapton, managing director of Wellian Investment Solutions, cited the apparent balance sheet strength of Lehman Brothers before the financial crisis as an example of why more standardised business accounting was also necessary.
peter.walker@ft.com
