The FCA has proposed a “significant package of remedies” for UK asset managers after the interim findings of its probe into the industry suggested price competition was weak.
The long-awaited findings of the market study, which the City watchdog launched in November 2015, found “limited price competition” for actively managed funds.
The FCA said that, on average, such costs were not justified by higher returns.
The regulator went on to warn that fund objectives were not always clear, while portfolio performance was not always reported against an appropriate benchmark.
As a result the organisation has now proposed a series of measures to make competition work better in the market and protect those least able to engage actively with an asset manager.
These include a “strengthened duty” on fund firms to act in the best interests of investors, including reforms to hold them to account for how they deliver value for money, and the introduction of an “all-in fee” so investors can identify costs.
The FCA is also to carry out further work on the retail distribution of funds, particularly in relation to the impact financial advisers and platforms have on value for money.
In a statement, FCA chief executive Andrew Bailey said: “We want to see greater transparency so that investors can be clear about what they are paying and the impact charges have on their returns. We want asset managers to ensure investors receive value for money through pursuing energetically their duty to act in their customers’ best interests.
“The remedies that we are proposing today aim to achieve these outcomes.”
At a press conference this morning (November 18), Mr Bailey added: “There are times and places where price caps can be useful but if you are trying to stimulate competition it's not an obvious place to go to.”
In response to whether underperformers should be named and shamed, Mary Starks, the FCA’s director of competition said the regulator is “not looking to create a hall of infamy”.
“We are looking to make sure that if you are in a fund it's easier to figure out [if it's underperforming]. It's a consumer tool,” she added.
The UK’s asset management industry is the second largest in the world, managing nearly £7trn of assets.
In an initial response Chris Cummings, chief executive of the Investment Association, said it will “engage closely with the FCA to understand its findings and the full implications of potential remedies".