The UK’s £7trn asset management industry is frequently failing to deliver to customers and should publish all-in-one fund fees to improve customer understanding, the FCA has said.
The regulator’s interim findings from its Asset Management Market Study, spread across more than 200 pages, have restarted the active versus passive debate and highlighted the difficulties faced by investors in finding value for money.
To remedy this, the regulator outlined plans to “bring together a consistent and coherent framework of interventions, which will increase the transparency of costs so those seeking information can get it.”
One measure is to force managers to quote an all-in fee to make it easier for investors to compare total charges.
Adrian Lowcock, investment director at Architas, said this could have the reverse effect by driving up management fees and argued that investors put more emphasis on performance.
“I don’t agree that investors are always concerned about charges – investors are generally concerned about getting a good return.”
But the FCA study found most active managers underperform the market, and said its overall findings “raise a series of concerns about how effectively competition drives value for investors”.
The watchdog has proposed further work on how platforms and advisers contribute to investors achieving value for money. It is considering looking more closely at fund ratings agencies after identifying failings among best-buy lists.
The findings come during a difficult period for active products. Statistics compiled by the Investment Association, contained within the report, identify a clear shift in the popularity of passive funds. Between 2014 and alone, their market share increased from 20.2 per cent to 23 per cent, while active funds’ share fell from 76.4 to 73.7 per cent.
“Passives have become cheaper and more accessible through ETFs [exchange-traded funds], and that trend is continuing at the moment,” said Mr Lowcock. He added that the rises seen in indices such as the FTSE 100 have left some investors questioning how active managers can actually add value.
But he suggested both active and passive should be considered to achieve good returns, noting that recent data may not necessarily indicate long-term investor behaviour.
“These trends come and go but at some point active will reclaim favour,” Mr Lowcock predicted.