A week since the FCA’s interim report on competition in asset management, and the dust has started to settle. A 200-page report has been distilled down, inevitably, to a handful of conclusions: an ‘all-in’ fee for funds, another ratcheting up of the active versus passive argument and, on the institutional side, some fierce criticism of investment consultants.
There’s more to it than that though, as this week's issue of Investment Adviser outlines. We’ll continue to look at the implications for advisers over the coming weeks. But for now, here’s five brief but not insignificant points from the study that are worth a closer look.
First, trail commission. The FCA has been pretty consistent on this issue, and reiterated in the report that it doesn’t intend to “revisit” its decision to allow fund managers to keep paying trail commission ad infinitum. Nonetheless, there are signs of a slight shift: the regulator is still keen to do more to highlight cases where investors would be better off switching share classes. Food for thought for some intermediaries.
Second, another type of commission: that passed on by fund managers to brokers when trading securities. It’s been a decade now since the FCA first attempted a crackdown on the bundling of investment research costs with trading costs. Those efforts have been given added weight in recent years by the imminent arrival of Mifid II, but some still aren’t listening. The watchdog is considering investigating certain firms for continuing to use dealing commissions to pay for corporate access, in direct contravention of its rules.
What else? The study also flagged a more visible annoyance for clients – the time required to transfer investments between platforms or self-invested personal pension (Sipp) operators. The FCA says delays found at some dealers and wealth managers represent “a risk to effective competition”. Solutions are being debated by the regulator, so expect more work here in the coming months.
One surprise, perhaps, relates to vertical integration. The FCA’s business plan, published just six months ago, showed it was concerned with the rise of a business model that brings together providers and distributors under one roof. When it comes to those with platforms, however, the market study found little evidence that in-house funds were prioritised at the expense of others.
Nonetheless, the FCA is clear that this isn’t the end of its review of vertically integrated businesses or investment advice in general.
That brings me to a fifth point – one which has admittedly attracted some attention, and which could yet morph into something more significant. It looks like a focus on the risks involved in the use of model portfolios – how they compare with one another, how they select funds, and how much value they offer – is going to become yet another thorny issue for advisers.
Dan Jones is editor of Investment Adviser
