The FCA’s examination of competition in the asset management industry could result in more direct action against firms, say experts.
The FCA today set out the key areas it will focus on in its market study into competition in the asset management industry.
The regulator will assess firms on how they compete to deliver value, whether they are motivated or able to control costs, and how investment consultants affect competition for institutional asset management.
Law firm Pinsent Masons warns the review may lead to further “rules or direct action against individual firms”.
Partner Elizabeth Budd says: “What is notable is that the study is wide-ranging and encompasses not only the managers themselves but those along the value chain whether distributors, fiduciaries or other advisers. It is also set against the backdrop of examining whether there are barriers to innovation and technological advance, a theme that is very much at the forefront of the FCA’s current thinking.”
In particular the FCA will look at retail investors’ ability to access information on transaction costs on an ongoing basis and act upon it by switching products.
Graham Bentley, managing director of investment consultancy gbi2, says he would like to see a review of legacy investments, including how fund managers charge and how this process can be made more efficient.
He says: “If you are a fund manager who has sold a lot of units off the page 15 years ago that share class is still charging 150bps. But if you bought the same fund today from a platform it would only cost you 75bps and even if you added the platform fee it is still cheap. So that process needs to be made more efficient.”
There are billions of pounds invested in “dinosaur investment products” and individuals should be encouraged to review their investments, says Hargreaves Lansdown senior analyst Laith Khalaf.
Khalaf also says the FCA should look specifically into pricing in the tracker market.
He says: “There is a very competitive end to the tracker fund market, which has seen fund costs slashed to the bone, with a UK tracker fund available from Legal & General for a fund charge as little as 0.06 per cent per annum.
“At the same time there are tracker fund providers who are not playing this game at all, and are charging more than 10 times as much for a near identical product.”
EY senior advisor Malcolm Kerr says the FCA should also explore the way competition works when asset managers have to unbundle research costs under Mifid II.
He says: “If all managers reprice their funds at the same price that suggests that competition isn’t working as normal in the market. The industry may say that competition is about performance, not about price, but other people would say it is very unusual that everyone charges the same price.”
The FCA will also outline in its study the difficulty investors have in making sure they are getting value for money and in monitoring the performance of asset managers.
Bentley says: “Half of funds launched years ago are now closed or merged so information presented to the world now is different.
“It is difficult to assess the value for money investment managers deliver to investors because you have only a small proportion of the fund performance story today. Maybe there is an issue there for the regulator, which is about how do you factor in to your reporting your past failures as well as your past successes?”