After months of waiting, the FCA has finally called the asset management industry to order.
Last week, it set out a number of new rules to combat what it sees as an uncompetitive sector underdelivering for consumers. The lukewarm orders disguise an inconvenient truth for fund managers: they have had it far too good for far too long.
Two new requirements take centre stage when it comes to ensuring value. Fund managers will have to evidence the worth of their proposition in a new annual statement. They must have at least two independent directors on their boards, or a minimum 25 per cent of board positions.
Fund managers may well complain that the value test is just another piece of pointless paperwork they will have to put out every year, and that any more red tape like this just ends up being passed on to the end-investor. But when the leading lights of the industry don’t just make tens, but hundreds of millions of pounds in raw profit every year, it would take an unbelievable amount of nerve to put prices up on the back of fairly tepid FCA proposals.
This also dodges tough questions on why reform was needed. If you didn’t have independent representation on your board, why on earth not?
The ban on capturing box profits has also been confirmed. But if you were keeping box profits and not returning them to investors, what was the reason for this, other than you wanted to skim another margin where no one was looking?
Finally, the FCA has proposed a way to help asset managers migrate customers to cheaper share classes where appropriate. But, again, there was little stopping well-run managers doing this as it stood.
Work on a template for charges disclosure is ongoing. “Standardisation is impossible” or “it’s too complicated” have been convenient get-out clauses for managers against greater transparency, knowing that the less the average investor knows about how they make their money, the more likely they are to invest.
Some of these same people will have, undoubtedly, been the same people that the FCA found to have knowingly misled consumers when selling them overpriced closet trackers a month before.
While the FCA has focused on how fund managers are serving the end-investors, frankly, they have not been serving their principal clients – advisers – well either. Yes, the advice sector as a whole still retains around £780m in profits, but this has come down. Advisers have also benefited from an RDR that enforced professionalism on the fringes of the sector. Asset managers have, to date, not faced regulation nearly as fundamental as upping qualification standards and killing new commissions overnight.
Both advisers and the investing public have a stronger case than ever to keep up the pressure for value.