Regulation  

FCA condemns fund managers’ cost disclosure

The latest FCA review into fund management charges has found that the majority of firms in the industry are still not communicating charges clearly enough to investors.

The regulator has told firms the ongoing charges figure must be displayed in the key investor information document.

The thematic review, published today (May 13), found some of the codes of practice on communicating charges were so bad that the FCA has forced some asset managers to take “remedial action” to fix the issues.

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The regulator called on all fund managers to review its paper on charges and “review their arrangements accordingly”.

The FCA reviewed 11 asset management firms from a variety of backgrounds, such as independent asset managers, banks and insurers.

It found that many firms were still using the annual management charge in marketing material, using different charges in different documents and making it difficult for investors to understand the full costs and compare those costs with other funds.

Of the 11 firms reviewed by the FCA, it said seven of those “used the AMC as the headline charge figure on marketing material, which did not provide investors with a clear, combined figure for charges”.

The regulator claimed seven of the firms “did not fully consider investors and had charging structures and information that were likely to be less than clear to investors”.

Six firms were accused of making “charging structures more complex by using administration charges that did not correspond to specific administration costs or adding performance fees”. And three firms had unclear descriptions of administration charges, the regulator said.

The thematic review said: “Additional ongoing charges can add significant amounts to the cost of a fund and we saw some small funds with charges of up to 0.9 per cent in addition to the AMC.

“Using the AMC could therefore result in retail investors finding it difficult to accurately compare charges and potentially underestimating the cost of some funds.

“The OCF represents the ongoing costs to the funds, which includes the AMC and other charges for services such as keeping a register of investors, calculating the price of the fund’s units or shares and keeping the fund’s assets safe. The OCF must be displayed in the KIID.”

The IMA welcomed the FCA’s call for fund managers to use the ongoing charges figure rather than the AMC within marketing material.

Daniel Godfrey, IMA chief executive, said: “The IMA calls on all market participants, fund managers, platforms, IFAs, data providers and the media to respond by abandoning all use of AMCs and by the exclusive use of the OCF in marketing literature, advice and commentary.”