Fund groups snub FCA’s all-in fee proposal

Fund groups snub FCA’s all-in fee proposal

Asset managers have urged the regulator to abandon a proposal it put forward which aims to pull down costs for investors.

In November, the Financial Conduct Authority issued a report on the asset management industry which criticised the weak competition in the active fund sector.

One of its proposals was the introduction of an all-in-one fee which aimed to simplify the charging structure for investors and make it easier to compare the price of funds. 

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But asset managers, including passive specialist Vanguard and active fund group Old Mutual Global Investors, have criticised this proposal.

Richard Buxton, chief executive of Old Mutual Global Investors, said a single charge that includes transactions costs could pose an unintended conflict of interest between asset managers and investors.

He said this proposal could actually provide an incentive for managers to cut down on the level of trading for reasons which are unrelated to markets.

Mr Buxton also warned the constraint on transaction costs might limit the viability of investment strategies that have a high turnover, even when these strategies lead to better outcomes.

Richard Withers, head of policy at Vanguard, said including transaction costs as part of the all-in fee could actually end up increasing costs for investors.

“If you purely have a figure that is setting out the all-in cost in advance, then we have some concern it might encourage providers to over-estimate the likely transaction costs that could be incurred over the year to ensure they stay in the parameter of the all-in fee.

“We have some concern this could increase the cost for investors, which is not a good outcome.”

Yet Mr Withers welcomed the idea of a simplified charging structure and said an all-in fee should cover operating expenses, such as audit, legal and administrative fees, but said the transaction cost should sit apart from that.

The policy head said fund groups should have disclosure of average transaction costs over the past three years so investors can make sure this is a good estimate of what transaction costs would be.

The New City Initiative, which is made up of 54 independent asset management firms based in the UK and across Europe, has also warned that the all-in-one fee might have unintended consequences.

Jamie Carter, deputy chairman of the New City Initiative, said investors should not be charged fees that fail to reflect performance.

While he said the single fee, which incorporates transaction costs, would make the charging structure easy to understand, New City Initiative members – which collectively manage around £400bn – have urged the FCA to rethink this proposal.

The network said transaction charges might be higher than expected because they are difficult to predict, meaning manager fees might not cover all costs which could then result in them making a loss.