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FCA sets out reform package for asset management sector

Regulator confirms all-in fee and sets out plans to make fund objectives more clear to investors

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The FCA has announced “a package of remedies” following its investigation into the asset management industry, and has confirmed its plan for an all-in fee to be disclosed to investors.

In its much-awaited final report, published today, the FCA confirmed the findings of last year’s interim report which highlighted weak price competition in various areas of the investment industry, including “the evidence of sustained high profits” of firms over the years and a lack of clarity around funds’ objectives.

There are three main areas of focus in the final FCA report.

In order for firms to guarantee investors value for money, the regulator wants fund managers to appoint a minimum of two independent directors to their boards and make it easier for fund groups to switch investors into cheaper share classes.

The FCA also says it will go ahead with its proposal of an all-in fee for funds including transaction costs, despite respondents claiming this would be “unnecessary” or would result in higher costs and complexity and make it more difficult to compare products.

The regulator will work on how to present information on costs as part of its Smarter Consumer Communication initiative which will conclude in September.

A working group will also be set up to focus on how to make fund objectives clearer and more useful as well as consult on the use of benchmarks and performance reporting.

The FCA also says it will scrutinise the role of financial intermediaries and distribution, reiterating concerns about the impact of vertical integration models. Respondents to the interim study have pointed out some models have margins “in excess” of fund managers’ profits.

The regulator will cover the role of distribution in its upcoming investigation into the platform market.

FCA chief executive Andrew Bailey says: “The asset management sector is important to the economy, managing the savings of millions of people and in the current low interest environment it’s vital we help people earn a return on their savings. We need a competitive sector, attracting investment into the United Kingdom which also works well for the people who rely on it for their financial wellbeing.

“We have listened carefully to the feedback we received in response to our report last November. We have put together a comprehensive package of reforms that will make competition work better and help both retail and institutional investors to make their money work well for them.”

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