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Fund managers line up new value statements for clients

VALUE CONCEPTWith nearly a year and a half still to go until the FCA’s deadline, fund groups are already lining up how they will deliver the prescribed value statements to clients.

As part of its asset management market study earlier this year, the FCA imposed a new requirement on asset managers to review and document to clients exactly how the products they were sold offered them value for money on at least an annual basis. The value assessment must be applied separately for each class of units in a scheme.

There are seven minimum considerations the FCA said fund managers must document in their value assessment: quality of service; performance; general authorised fund manager costs; economies of scale; comparable market rates; comparable services and classes of units.

This means managers must assess the range and quality of services, whether returns align with the fund’s objectives, how payments for services like research stack up and whether better deals for the same service may exist elsewhere in the market. The FCA said this was a “minimum basis for the assessment” but managers could also make value judgements on other aspects of their service. Failure to do so could be a breach of the FCA’s clients best interest rule under its conduct of business regulation.

The FCA ruled in its study that “fund managers have not considered robustly the value they offer to investors under our existing rules” and that “this is leading to harm to investors through poor value products”.

While the FCA pushed back the implementation date of the rules to 30 September 2019, giving managers 18 months to prepare, Money Marketing has learned that work is already under way at many investment houses to line up compliance value assessments.

If you approach this the wrong way it can seem defensive – like you are having to justify your existence

Janus Henderson has held formal meetings over the last month or so. It is splitting work to look at how it meets both the quantitative and qualitative elements of the value test.

Global head of product strategy and development James Bowers says the firm already conducts work on areas like benchmarking the costs and performance of its suppliers during annual due diligence processes, but is now working to translate this into client friendly terminology.

He says: “We are trying to think quite creatively. There is no standard template, no declaration you can refer to. We wanted to have our thoughts in order before a third party could provide us with one.”

Over and above the FCA’s six requirements, Bowers says Janus is looking to find a way to document how, overall, active management in particular is valuable to the client. Other key areas of focus include making sure the difference between retail and institutional charges is made clear with enough context to explain the variance.

He adds: “If you approach this the wrong way it can seem quite defensive – like you are having to justify your existence. Nothing in there really throws us, but it needs to be presented in the right way.”

Schroders co-head of intermediary James Rainbow says the asset manager has now completed separate research with consumers, advisers and institutional investors, which it will use to tailor the FCA’s requirements to each type of individual.

Rainbow says: “What’s clear is that the drivers of value in a more generic sense differ quite materially from one client group to another. We are very sensitive of how we apply that. The plan is we are going to use the framework from the FCA and overlay it with what that research has produced.”

Because reporting periods fall at different times across Schroders’ fund ranges, Rainbow says that the firm is looking to have value statements in place by the early part of summer 2019. He says: “Running our fund range, it’s a complex exercise of mapping and working backwards from those deadlines.”

Defaqto investment insight analyst Fraser Donaldson says that while he has not seen any examples of work on the value documentation himself, he is glad that managers appear to be getting out ahead of the issue.

“[The FCA paper] made a few people really sit up and take notice. Satisfying people that you have justified yourself in terms of value is quite an important thing, and it will take a long time to come up with a decent solution that means that they can.”


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