The Government is set to impose fiduciary duties on investment advisers as part of plans to rebuild trust in financial services.
Speaking at the National Association on Pension Funds corporate governance conference yesterday, business secretary Vince Cable set out the Government’s response to economist John Kay’s review into long-term decision making in business, published in July.
It will seek to define fiduciary duties for all investment intermediaries including advisers, brokers and trustees by ordering reviews from the Law Commission and Financial Conduct Authority.
The FCA will consider whether its regulatory rules and approach support these standards and the Government will seek to change EU rules where necessary.
The Law Commission will review the legal obligations on investment intermediaries seeking to act in their clients’ best interests and report back as soon as it can.
Cable said: “Trust is the product of behaviour – a commitment to act with integrity and expect integrity from each other.
“We are making it clear that all intermediaries should act in good faith in the long-term interests of clients or beneficiaries.
“These standards should be universal and immutable. We need to achieve them by making sure that our regulatory framework supports them – but also by promoting them as behavioural norms in the investment industry.”
In his Government-commissioned report, Kay also identified a particular problem in how the performance of active asset managers is currently measured. He argues there is too much focus on the short-term and competition with other managers ahead of long-term value.
Cable said: “Pension schemes and other asset holders need to issue clear mandates for active asset managers. They must set targets to achieve absolute returns that meet the needs of savers rather than just chasing the market.
“That approach will send a strong signal that it is time the short-termism ended and was replaced by a clear-sighted focus on long-term value creation.”