The Financial Conduct Authority is planning to investigate the complexity of fund management charges and whether these charging structures are harming consumers.
In its business plan for 2013/14, published this week, the FCA says fund management fees have risen over the last 10 years, additional “hidden” charges have increased and charging structures have become more complex as performance fees have become more common.
The regulator is concerned fee structures may exploit consumer behaviour, with complex charging structures that make price comparisons difficult.
It is also worried firms are applying more complex fee structures to retail customers than institutional clients, and that the long-term impact of small increases in annual charges is being downplayed.
The FCA says: “In 2013/14 we will undertake a project that will highlight the behaviours and practices of asset management firms in relation to charging structures that harm consumers.
“Initial evidence suggests fund fees are high in the UK compared to comparable markets and charging structures do not promote informed consumer choice.”
The FCA is also planning to carrying out the second stage of its work on how fund managers handle conflicts of interest. It follows the Dear CEO letter sent to fund managers in November which highlighted firms did not adequately control spending on research and execution services, and did not regularly review whether products and services bought using client commissions were eligible to be paid for with customers’ funds.
Clearwater Financial Planning managing director Duncan Carter says: “Your average punter would struggle to ascertain exactly what is being charged.”