Urgent reform of investment market needed – FSCP

The UK investment market does not work in consumers’ best interests, a paper from the Financial Services Consumer Panel has claimed.

Panel chairman Sue Lewis said: “Investment managers in the UK have stewardship of £2.4trn of retail consumers’ money, including through pension funds. Poor disclosure, weak governance and multiple conflicts of interest mean competition in the investment market is not working in the best interests of consumers.”

According to the nine-page paper, Investment Costs: More than Meets the Eye, the FSCP warned that retail investors were “particularly badly placed” because they “lack market clout”, and even institutional investors might not know the full cost of investing.

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In the paper, the FSCP called on investment managers to quote a single and comprehensive annual charge, after finding many of the costs of investing were simply not known. It also recommended giving investment managers a legal duty to put the interests of clients first.

Ms Lewis said: “The problems our research has identified are long-standing, and need fixing urgently. People depend more and more on investment to deliver their long-term financial wellbeing, especially in the light of recent pension reforms.”

The paper claimed that funds managed in the UK by members of the Investment Management Association on behalf of domestic and overseas clients grew by 13 per cent last year to reach £13trn.

Daniel Godfrey, chief executive of the IMA, said making the cost of investing simpler to understand had “eluded” regulators and the industry. He said: “Investment managers play a central role in the financial well-being of millions in the UK. This is a serious responsibility, and these individuals are our primary concern, always.”

He added the IMA had developed a measure to tell consumers how much a unit in a fund grew over the course of the year and how much it cost to achieve that. Mr Godfrey said he expected this to be in place next spring.

An FCA spokesman said: “We welcome the FSCP’s work. In particular, the recommendations around the disclosure of costs and charges are a useful contribution to the debate on delivering transparency of transaction costs in the workplace pensions market.

“We share the panel’s ambition to ensure industry is focused on the best outcomes for consumers.”

Adviser view

Elliot Webb, of London-based Coloma Wealth Management, said: “I guess clients who don’t work with an adviser are less clear about what’s happening. It is the job of the adviser to make it clear.

“I think charges are a lot better disclosed than they have been to date, and these days it is all pretty clear.”