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FCA chief: New asset management rules will help drive down fees

Regulator hopes latest interventions in market will lead to fall in charges

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FCA chief executive Andrew Bailey

The FCA chief executive Andrew Bailey expects costs of fund management to keep going down as a direct consequence of the regulator’s study into competition among asset managers.

Speaking at a press conference following today’s publication of the FCA’s final report into the investment industry, Bailey said fund fees will continue their downward trajectory if competition in the sector continues to “prosper and develop”.

He said: “We are already seeing some trends in the industry [of fees coming down]. It does seem to be the case that in a very recent period we maybe see some change in the trend, but in the longer period it is really imperceptible. It may suggest that [the press] already indicates that there are some changes going on already.

“I would expect and hope that the measures we are going to take will create the environment in which we will see that competition prospering and developing. Yes, [lower fees] is one of the things we expect to see from [more] competition [in the investment industry].”

In its final report, which has confirmed the far-reaching proposals outlined in its interim report, the FCA restated the remarks on how active fees haven’t changed much over the past 10 years, despite the Investment Association questioning the validity of this time frame.

FCA sets out reform package for asset management sector

FCA chief economist and director of competition Mary Starks  said active fees have only dipped “very slightly” looking at a three-year period, as the Investment Association suggested, but not nearly as much as passive fees.

She said: “We have had lengthy discussions with the IA. They would rather we looked at a three-year period, which shows a tail-off in active fees, but over the longer run of 10 years this is imperceptible.”

More than Mifid II and Priips scope

The FCA report has confirmed the regulator will go ahead with its heavily criticised all-in fee proposal where fund managers will need to include transaction costs.

Work will continue on the proposals as the FCA aligns with reforms under the upcoming Mifid II and Priips regulations.

But FCA executive director of strategy and competition Christopher Woolard said the FCA is going to extend the rules of Mifid II to the whole fund management industry and not only the intermediaries where the European regulation actually applies.

He said: “In broad terms, over the time we have conducted our study we had more clarity around Mifid II and Priips. They have transparency built into [them]. The core of the Mifid II proposal around how there is an expectation of fixed cost and estimate of transaction cost is a good one and matches really much on where the thrust of our findings was going in the interim study.

“What we are doing here is to build on that. That particular Mifid II only applies to when you are going through an intermediary. We believe that should work more broadly across the asset management sector in terms of disclosure it is giving.”

On how fund managers would report on transaction costs when passing those to consumers, Woolard says the all-in fee proposal will make sure these will be made clear.

Woolard said: “If the fund manager has underestimated the transaction costs in a sense that it creates a trade war in order to achieve the objectives of the fund, there is a chance that will end up with the consumer but it will be clear to investors at the end of the year [what that cost will be] and at that point we expect the fund manager to explain what these costs are to the customer.

“There is a question on what if a fund manager deliberately chose to underestimate costs in order to drive their competitive position…We expect disclosure to be fair and not misleading.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Any chance of any measures to reduce regulatory fees? Or even the rates at which they go up year upon year? Over to you Mr Bailey.

  2. One thing is very apparent from this report…Mr Bailey is very skilled with the words he delivers !

    Price regulator… not us says he

    Reading between the lines, we (FCA) will continue to beat you all with a big stick to achieve compliance,

    Reducing costs to a flat level does not and will not increase competition…… says I

    All you are left with, is the worst rubbing shoulders with the best, and everything is watered down because nobody can make any money……

    Personally I would rather spend and invest on over proof single malt scotch, than watered down paint stripper from the supermarket…. I think its called (i may be wrong) personal choice

    Wonder what would happen if all whisky makers were all forced to cap their price….. competition, quality, and investment ……..all gone and replaced with OK lets just turn out a endless stream of crap !!!

  3. Presumably this is the same expectation regulators, past and present, had all the times before when they tried to regulate on costs. No doubt this time it will be different and there will be no unintended consequences.

    Competition works best when you free the market not strangle it.

  4. Race to the bottom:

  5. FCA costs? For what? Value for money?
    Pension funds being stolen by the millions each week! They cannot even stop called calling!
    This obsession with CHEAP, the race to the bottom, across the whole financial services industry is becoming a joke, its a shame they cannot apply the same principles to themselves.
    Very expensive regulattions achieving very little to protect consumers. The regulators are quick enough when they are challenged on their cost, proclaiming that you cannot have good effective regulation cheaply. Its impossible they tell us, but in the same breath tell us the complete opposite. They want the earth for £2.50 and a mars bar wrapper, whilst they spend Bentley money undertaking simple enquiries and reviews.
    I wish they would place greater resources stopping fraud and unethical operations before spending millions looking at prices, which consumers have a choice to pay or not.

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