The City regulator may have missed a golden opportunity to reform asset management in the UK.
The Financial Conduct Authority published its final findings of its asset management market study last month, and while it has addressed a number of key issues, it has completely missed a chance to reform the sector into a customer-focused industry for the UK.
And this failure is even more worrying given that widening the appeal of UK asset management on the global stage (and facilitating greater participation in long-term investment for retail customers), is arguably more important than at any time in recent history.
The FCA report does however throw down the gauntlet for the adviser community to fill the gap as the fiduciary for retail customers – the need and opportunity for high quality professional advice and planning is more valuable than ever.
The remedies the City regulator is taking forward fall in to three areas. To help provide protection for investors the FCA proposes to:
• Strengthen the duty on fund managers to act in the best interests of investors.
• Require fund managers to appoint a minimum of two independent directors to their boards.
• Remove 'box profits'.
To drive competitive pressure on asset managers, the FCA will:
• Support the disclosure of a single, all-in fee to investors.
• Support the consistent and standardised disclosure of costs and charges to institutional investors.
• Recommend that the department for work and pensions remove barriers to pension scheme consolidation and pooling.
• Chair a working group to focus on how to make fund objectives more useful and consult on how benchmarks are used and performance reported.
To help improve the effectiveness of intermediaries, the FCA will:
• Launch a market study into investment platforms.
• Seek views on a market investigation regarding the institutional advice market to the Competition and Markets Authority.
• Recommend that HM Treasury considers bringing investment consultants into the FCA’s regulatory perimeter.
In February 2000 the Financial Services Authority published an Occasional Paper which said:
"Retail investors cannot easily measure the price of investing through the investment funds they must choose between, in part because a significant element of this price is mostly not disclosed at all.
"Moreover, even where retail investors can identify elements of this price, they may not place sufficient weight on this information in taking investment decisions.
"If they had the knowledge and the information needed to assess which funds provided value for money portfolio management and risk management services, then they would be able to exercise more effective investment decisions.
"The FSA intends to pursue these possibilities further, in consultation with the industry, consumers, and other interested parties".
So, 17 years later the regulator is still thinking about it. One wonders if there is an asset management cartel with deep political influence that manages to endlessly delay the decision-making process for some reason?