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FCA raises fund disclosure and distribution concerns

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The FCA has raised concerns over closet trackers, unclear disclosure and distribution controls following a thematic review of asset management firms.

The first results from the review show a number of asset managers have failed to disclose closet tracker funds, while others did not have clear descriptions of funds.

The FCA says asset managers need to ensure product descriptions are clear and easy to understand, and also consistent between marketing documents and fund disclosure documents.

Of the 23 funds and four segregated mandates from 19 asset managers the FCA examined, seven KIIDs didn’t have “clear descriptions” of how they were managed, while five funds used a benchmark-related approach that was not disclosed.

Other examples of poor behaviour included firms failing to disclose a constrained investment strategy and one company using complicated jargon in its product description.

The FCA also found examples of inadequate governance, as well as stating firms need to better monitor fund distribution.

The regulator says two funds were available on execution-only platforms when the fund management company wanted them to be available only with advice.

Another area where the FCA wants to see improvement is with funds that are not actively being marketed anymore. There were four such funds in the review, with the regulator finding problems with all of them.

One firm, for example, “consciously” excluded some funds that were not being actively marketed from a review of annual management charges, leaving customers to pay a higher fee.

The FCA says: “When funds cease to be actively marketed there is a risk that firms do not provide the same level of attention to customers’ interests as they do for recently launched products.”

FCA director of supervision, investment, wholesale and specialists Megan Butler says: “Firms are generally managing funds as they say they will. In most circumstances they are clear about how they are going to invest and have the correct level of oversight to ensure practice follows promise.

“However, the industry needs to consider how it communicates when funds are linked to financial benchmarks. It is also vital that funds keep investment practices under review so they match their stated aims and strategy, irrespective of whether the fund is still actively marketed, because investors base their decisions on this information.”

The FCA is currently writing to all the reviewed firms to provide individual feedback and is already ensuring the most significant issues are being addressed.



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