The Financial Conduct Authority (FCA) today (February 4) published new rules and guidance to improve the quality of the information available to consumers about the funds they invest in.
Here are three things advisers need to know about the regulator’s latest set of asset management rules – which come into force in August - and how they impact them and their clients.
1) Make it clear
Fund managers were told to describe fund objectives and investment policies in a way that is "more useful to investors".
However the FCA stated it wouldn’t publish examples of good and bad practice or a glossary of consumer-friendly terms to try and assist fund managers with this task.
Instead the FCA just stated fund managers will need to consider whether consumers can reasonably understand the objectives they set out.
The regulator stated it expects fund managers to disclose in key information documents the features of the investment strategy that are a fundamental feature of how the product is managed.
For example, where the manager’s strategy is to invest only in companies that they consider to have good growth prospects, this should be disclosed.
Where a manager has flexibility to invest in different ways depending on their view of market conditions, the FCA stated it does not expect managers to disclose the investment focus at a single point in time but instead make clear the flexible nature of their investment strategy.
2) Assessing performance
Fund managers must now explain why or how their funds use particular benchmarks or, if they do not use a benchmark, how investors should assess the performance of a fund.
Fund managers who use benchmarks have been ordered to reference them consistently across the fund’s documents.
Fund managers who present a fund’s past performance have been told to do so against each benchmark used as a constraint on portfolio construction or as a performance target.
For funds with more than one such benchmark, the FCA expects past performance to be shown against all those benchmarks.
According to the City watchdog the purpose of these proposals is to give investors the information they need to make decisions.
3) Making sense of fees
Where a performance fee is specified in the prospectus, fund managers have been told it must be calculated based on the scheme’s performance after the deduction of all other fees.
emma.hughes@ft.com
