Fund firms gear up to counter FCA criticisms

Fund firms gear up to counter FCA criticisms

Asset managers are expected to deploy separate analysis to that used in the FCA’s market study as they fight to avoid the prospect of more regulation.


The February 20 deadline for replies to the FCA’s interim findings, which last year criticised “weak” levels of competition among asset managers, is set to prompt industry retorts to some of regulator’s claims.

It is understood the Investment Association will focus on refuting the FCA’s analysis, which showed that after fees, active funds on average did not add value to investors.

Asset managers could suggest an alternative methodology, while also challenging claims a number of funds were only partly active, but charged higher fees than trackers.

Others, such as boutique fund house Orbis Investments, have highlighted the potential for stronger enforcement of existing rules. Its head Dan Brocklebank said: “The FCA’s report points to a disappointing gap between...the current regulatory framework and actual industry practice. There is ample scope for...more rigorous and effective enforcement of existing rules, before adding additional layers of regulation.”

However, the firm welcomed the FCA’s argument that current fee models only incentivised fund houses to grow assets and were not aligned to investors’ interests.

Mr Brocklebank said the firm was responding to the study to encourage a shift towards a “well-structured symmetric performance fee”, where only managers who outperform are paid.

However, passive and low cost provider Vanguard used its response to urge the FCA to overhaul investor communications and make charges more visible, and put costs more into the focus of investors.

It said the FCA should "radically simplify" investor communications - including enforcing a warning on factsheets urging investors to consider fees.

Its own research suggested mass confusion on fees, with half of 'engaged investors' still unable to say how much they had spent on charges.

Vanguard said a new, simpler, template should replace existing fund documentation.

Sean Hagerty, head of Vangaurd's European arm, said: "A 'health warning' on the impact of costs would be a clear sign of intent from the industry that it’s putting the needs of the investor first.”