Asset management firms must disclose estimated and actual fees and transaction costs to clients, but should not be forced to charge a single fee for services, the Financial Conduct Authority has recommended.
Managers will also be required to appoint at least two independent directors to their board under the proposals, released on Wednesday in the final report of the regulator’s asset management market study.
Transparency of cost disclosure has been the subject of intense debate in the pensions industry, amid mounting evidence that opaque and non-standardised practices hinder trustees in their efforts to provide members with value for money.
An actual inclusive fee would be saying to the customer ‘You pay us a set fee, we pay for everything else, it’s not your problem’
Daniel Godfrey, The People's Trust
The new disclosure forms the core of the FCA’s proposals for asset management firms, which will be subject to consultation.
A working group with an independent chair will be asked to formulate a standardised disclosure template for use by managers serving institutional clients, with the watchdog suggesting it could build on work done by the Local Government Pension Scheme.
There will be a strengthened duty on firms to act in the best interests of investors, enforced via the Senior Managers Regime.
An end to self-regulation
Introducing the report, FCA chief executive Andrew Bailey said: “We have reaffirmed the point we put forward last November, which is that we think in a number of areas of the asset management industry… that there’s evidence of some weak price competition.”
He said the impact of high fees was felt even more keenly in the current environment of low interest rates.
Stance could have been tougher
Transparency Taskforce founding chair Andy Agathangelou welcomed the proposals for an independent body, saying it was not for the industry to self-regulate on disclosure.
“What the market needs now… is an asset management industry that’s behaving properly, and for the industry to behave properly it must be regulated by the regulator,” he said.
However, the FCA chose not to impose the previously floated all-in fee structure, preferring to take a consistent approach with the transparency expectations built into the revamped Europe-wide Markets in Financial Instruments Directive and Packaged Retail and Insurance-based Investment Products regulations.
That means both institutional and retail clients will still pay for any variance from estimated transaction costs, although the regulator said the introduction of disclosure standards would make any sustained underestimating easier to spot for both investors and FCA supervisory staff.
Daniel Godfrey, co-founder of investment fund The People’s Trust and former chief executive of the Investment Association, said he was disappointed that the FCA had referred to its proposal, already required by Mifid, as supporting an all-inclusive fee.
“An actual inclusive fee would be saying to the customer, ‘You pay us [a set fee], we pay for everything else, it’s not your problem’,” he said.
Godfrey added that two independent directors would be less effective in focusing on value for money than an independent body within the firm.
