InvestmentsApr 12 2018

Moody’s links FCA action to cut in fund house credit ratings

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Moody’s links FCA action to cut in fund house credit ratings

Fresh regulations around fund charges has damaged the creditworthiness of the asset management industry, according to research from credit ratings agency Moody’s.

As FTAdviser previously reported, earlier this month the Financial Conduct Authority (FCA) revealed it will introduce new rules requiring asset managers to demonstrate how their products provide value for investors.

The FCA proposals include the disclosure to investors of a single fee inclusive of all costs, to address the lack of transparency of cost and performance information that makes comparisons between products difficult.

Moody’s said it believes the new rules will lead to lower fees for consumers, but have significant implications for the industry.

The agency’s report, written by Tiziano Oliva, an associate analyst at Moody’s said: "Asset managers that are currently not used to operating under a single-fee framework likely will have to streamline their reporting processes into a single format, highlighting all costs incurred in their fund dealing activities and standardising the reporting of funds’ performance.

"This will increase operational costs and price competition.”

The report added: “Although the new rules enhance transparency and protection for investors, active asset managers’ operating and compliance costs will increase and their fees will decline, reducing profit margins and accelerating the shift toward passive investment management, a credit negative.

"The FCA’s final rules on governance will take effect on 30 September 2019, with the rules for risk-free profits (box profits) taking effect on 1 April 2019.

"Active managers that have been experiencing an increase in operating and compliance costs following a number of local and global regulatory initiatives will have to overhaul their cost structures and product lineup or merge to offset the pressure on revenue and generate economies of scale.”

However the view from Moody's contrasts sharply with that of Alan Miller, founder of SCM Direct, a wealth management firm, who branded the changes minor and criticised the regulator for not going far enough.

As FTAdviser previously reported, Mr Miller has threatened the Financial Conduct Authority with legal action if it does not take more robust action on the issue of fees and charges.