The FCA has introduced new rules forcing fund managers to ensure their products provide value for the end investor.
As part of its asset management market study, the FCA has published final policy changes today after consultation last year.
It has decided to press ahead with new rules to strengthen regulation intended to make fund managers act in the best interests of their investors.
In its original consultation, the FCA proposed that each fund’s value for money should be assessed relative to a set of factors including the cost of delivering it and the quality of service, making this public each year and asking managers to take action if funds are found to be poor value for money.
After receiving feedback, the FCA has opted for final rules under which fund managers will still have to produce an annual value statement, but this will not be described in value for money terms after industry responses criticised the wording for being too focused on charges and not on the wider benefits of the product.
The FCA writes: “We have found that fund managers generally do not consider robustly whether they are delivering value for money, despite their existing obligations.
“There was broad support for our view that value is at the heart of the asset management proposition and that, as agents, fund managers owe duties to their underlying beneficiaries, the investors in the fund. Only a minority of respondents felt we should not introduce an obligatory assessment of value at all.
“We accept that our draft rules could be seen as too focused on fund managers’ costs rather than the full value proposition of funds, which was not our intention. We have redrafted our final rules to clarify that fund charges should be assessed in the context of the overall value delivered, rather than using the term ‘value for money’”
The FCA has also given managers longer to meet this requirement, with rules coming in in 18 months time as opposed to the 12 months originally consulted on.
The regulator has also introduced new rules today mandating that fund managers have at least two independent directors on their boards and that independent directors make up a minimum 25 per cent of board positions.
The FCA said it would continue to consider whether trail commission should continue to be allowed after respondents to the consultation were split on the issue.