In the 114-page asset management market study published today (28 June) the FCA stated a number of respondents to its consultation had raised concerns about the idea of a single all-in fee.
This had been one of the proposals from the FCA’s interim report, published in November, and the regulator stated it continues to support this idea.
In the final report the FCA stated: “Several respondents raised the high cost and practical complexity of providing transaction costs as part of a single all-in fee.
“Respondents also raised concerns that subsuming transaction fees into a single all-in fee could create perverse incentives for asset managers.
“They felt this could lead to a conflict of interest as asset managers might not be incentivised to trade even where this would be in the best interests of investors.”
Asset management’s biggest problem isn’t the FCA. It’s the dysfunctional nature of the investment chain that prevents them fulfilling their potential to optimise returns for investors and drive economic growth.Daniel GodfreyInstead, the FCA has said it will test ways of improving the effectiveness of disclosure, including the prominence and formatting of charges information so investors can understand fees and the impact they have on their investments.
The FCA highlighted the incoming Mifid II proposal which will require the disclosure of a single all-in fee to investors using intermediaries which will include the asset management charge, an estimate of transaction costs and any intermediary fees.
The regulator added: “To supplement existing and incoming legislation we are also considering whether to consult on guidance in areas such as the wider use of pounds and pence disclosure on other information sources.
“As part of this work we will also consider the benefits to consumers of consistency between point-of-sale and on-going disclosures.”
The FCA said it would consult on its proposals for fees and charges communications later in the year and this will inform any future action in this area.
On the issue of performance fees, the FCA said it was supportive of fee structures which align incentives between investors and asset managers but said it would need to look into this issue in greater detail.
Richard Wilson, chief exeucitve of Interactive Investor, said: “The proposed rules on fee disclosure should mean cheaper and more transparent access to mutual funds for our customers.
“Current percentage-based fees in the fund management industry mean that the greater the investment the larger the fee.”
Daniel Godfrey, former chief executive of the Investment Association and founder of The People’s Trust, said asset managers had been spared the harshest remedies.
He said: “Asset management’s biggest problem isn’t the FCA. It’s the dysfunctional nature of the investment chain that prevents them fulfilling their potential to optimise returns for investors and drive economic growth.”
Meanwhile the FCA has also proposed banning the retention of box profits, relating to the spread between the price at which the fund can be bought and the price at which it can be sold.
The FCA said: “We think that the benefit of any risk-free box profits should accrue to the fund as the most pragmatic means to end the practice.”
damian.fantato@ft.com
