The Financial Conduct Authority has declared asset managers are generally in defiance of Mifid II rules as they are failing to disclose all costs and charges.
Firms are required under the Mifid rules, which came into force in January 2018, to disclose all costs and charges that an investor in a fund or other investment product must pay.
In an update published today (February 28), the FCA stated most of the asset managers it reviewed calculate transaction costs according to the relevant rules and there was a good level of compliance with the documents firms are required to produce.
However, the FCA's review identified problems with the way some asset managers calculate transaction costs and how prominently they disclose them.
The FCA also found that asset managers generally do not disclose all associated costs and charges and where full disclosures are made inconsistencies between documents and website mean consumers can find the information difficult to understand.
The regulator urged asset managers to improve compliance with these rules.
Wealth managers, platforms and financial advisers were found to be "inconsistent" in how they implemented the Mifid rules, with many of the advice firms consulted stating that compliance is difficult because it is difficult to attain all of the relevant information from other parties.
But the regulator did criticise advisers for advertising one fee on their website but charging higher fees in other ways.
An issue that has proved vexatious for many asset managers is the requirement under both the packaged retail insurance and investment package (Priip) rules and the Mifid Ii rules to produce summary risk indicators and performance projections.
Judith MacKenzie, a fund manager at Downing, said the methodology fund houses are required to use when calculating the risk level is ineffective.
She said many venture capital trusts are given a risk weighting that would place them firmly in the lower risk category, while the tax breaks associated with VCTs require providers to invest in a way that requires risk to be taken.
On the topic of transaction costs, both the Mifid and Priips rules require firms to declare transaction costs.
Ms MacKenzie said that using one of the two methods that comply with the rules, it looked as though her fund’s transaction costs were 3 per cent, which would have made the total cost of ownership of her fund close to 5 per cent.
She said this has caused investors to pull 10 per cent of the assets from her fund.
The FCA said that while it is consulting on the implementation of these rules, it believes that most of the occasions when transaction cost reporting has turned up unusual outcomes, including zero and negative costs, is due to the methodology being implemented incorrectly.
Investors have also expressed concern about the requirement on asset managers to produce future performance indicators.
As FTAdviser has previously reported, the method that firms are required to use means they must make the calculation based on returns over the previous five years.