Assessment of value reports need to be easier to locate, more user-friendly and disclose costs better, an industry body has said, as it found asset managers were failing to meet the spirit of the regulator’s rules.
Analysis by CFA UK found the standard of value reports varied significantly across the 145 asset managers studied.
While reporting on fund performance was generally adequate, information on costs, objectives and a range of extra details were typically missing from the reports.
Nearly a quarter of the reports analysed (24 per cent) did not clearly outline their investment objectives — despite this being one of the few specific requirements outlined by the City watchdog — while 42 per cent failed to state the ongoing charge at fund level.
The CFA also found value reports were often not easily available to investors. It was only able to locate 75 per cent of the target reports, despite multiple efforts by phone and email to the firms in question.
According to the review, the worst areas of reporting were on quality of service and authorised fund manager costs. The CFA said the methods of assessing quality of service were especially unclear, and only 20 per cent of reports used customer surveys or independent assessments to provide the results.
Although outside of the specific requirements, fund houses also failed to provide other information of interest to investors.
For instance, more than three quarters (76 per cent) of reports made no reference to ESG or how value was being provided in this area, while 62 per cent did not mention risk and 87 per cent declined to comment on liquidity factors.
Andrew Burton, professionalism adviser at CFA UK, said it was “concerning” that many of the reports were failing to meet some of the basic requirements set out by the regulator.
He added: “The rationale behind making these reports obligatory was to increase transparency about fund performance and value for investors.
“Many of the reports being published, however, fail to provide the quality and completeness of information needed to advance investor appreciation of their current and potential fund investments.”
An FCA spokesperson said: "The process of assessing value is an ongoing and iterative one. The value assessment reports should be the product of that process, involving rigorous governance.
"We will continue to engage with firms to assess how effectively they are carrying out these out, benchmarking their reviews against the requirements of our rules."
The rules
Fund houses are required to carry out an annual assessment of whether the firm provides value for its clients, after the Financial Conduct Authority discovered weak price competition and high fees in its landmark asset management review.
The FCA left the framework for such reports deliberately vague, instead simply mandating firms to look at their performance, costs, quality of service, economies of scale, comparable market rates, comparable services and share classes.
In some instances, the reports have prompted asset managers to shut underperforming funds and slash their charges, such as in the case of M&G.
Other fund houses, such as St James’s Place and in the case of Hargreaves Lansdown’s debut report, attracted criticism after they insisted their funds delivered good value.
Progress made
More positively, the CFA UK found that the reports identified and evaluated scored relatively well for accessibility and general presentation.
It said: “The FCA’s guidance was widely-framed and, in many cases, the group was impressed by the creative thinking that went into the design of many report features to make them more digestible.
“The better reports often displayed data in an attractive format, using tables, charts and graphs or even short video content to reduce the volume of text.”
Reporting on fund performance also scored highly, with 11 per cent of reports being awarded full marks and the CFA finding that significant effort had been made to compare investments against peer groups or benchmarks.
Will Goodhart, chief executive of CFA UK, said: “A number of the reports analysed were excellent and the improvements in quality seen over the course of the year also indicate that publishers are learning from what others in the sector are doing and responding to negative feedback on some earlier versions.
“However, the overall weaknesses of reporting needs to be addressed so that we can make these reports genuinely useful to investors.”
imogen.tew@ft.com
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