Financial Conduct Authority chief executive designate Martin Wheatley has challenged fund managers to compete on lower fees rather than future performance and says they should be working more closely with advisers.
Speaking at an FSA asset management conference in London today, Wheatley said the issues of hidden charges, the impact on overall returns and whether fund managers were acting in investors’ best interests needed to be addressed.
He said: “We might ask ourselves whether it is a problem that the industry appears to compete predominantly on the aspirational aspect of its service, the future performance, when it is the one thing that cannot be compared and measured by potential investors.
“Is it a problem that consumers are buying a service whose quality cannot be measured until much further in the future when it is often too late to realise the product was the wrong choice or excessively costly?
“Some may say that is simply the nature of your business. But should we be concerned that asset managers compete less on the immediately measurable aspects of their offering such as fees?”
Wheatley said the RDR aims to be a “catalyst” for the industry to focus on the charges issue, but acknowledged that not all costs are down to fund managers and said the question of why investment intermediation costs remain high needed to be tackled.
He added it is down to the fund management industry and advisers to help consumers find suitable investments.
Wheatley said: “This could be doing things like making it easier for consumers to make rational decisions, increasing transparency around fees and charges, and being competitive on these immediate, factual aspects like fees, rather than projected future performance.
“At the FCA we will expect asset managers to work more closely with the intermediaries that sell their products. The truth is that asset managers can no longer distance themselves from the advice or sales process. Our view will be that the originators of products need to consider how they will distribute them as part of the design process.”
Wheatley also mentioned the creation of a new department at the FCA which will combine market intelligence with better analysis of risks to consumers. The FCA will then use this to develop policy and in its supervision of firms.
Page Russell director Tim Page says: “Wheatley is echoing a truth universally acknowledged within the industry for some time that there are too many closet trackers charging active fees and not delivering good value.
“The FCA will supposedly not be a commercial regulator. But it appears to be interpreting its competition powers quite widely, and as a result Wheatley’s focus on price is worrying for the entire sector.”