The Financial Conduct Authority should consider enhanced governance and a “health warning” on fees as part of its market study into the U.K. money management industry.
In published responses to the FCA's interim report considering a package of potential remedies to concerns it has regarding the industry, money managers and their representative body, the Investment Association, made a number of proposals to the financial watchdog.
The IA, whose members manage £5.7 trillion ($7.1 trillion) in assets, made a number of proposals in its response, including a call for greater consistency in the expression of strategy objectives and reporting of delivery against those aims.
It also wants enhanced fund governance processes, with “demonstrably robust mechanisms for the definition, consideration and reporting of how funds deliver in the best interests of clients to enable governance bodies, advisers and investors to better assess and compare value.”
Specifically on the institutional market, the IA highlighted the importance of enhanced transparency and investment governance. It also picked up on the FCA's proposal to bring investment consultants under its regulatory scope. “Improvements in these areas, alongside changes to the way in which investment consultants operate, notably bringing their activity into the FCA's regulatory perimeter, will help the institutional market operate more effectively,” said the IA in its response.
Also calling for enhanced fund governance was Old Mutual Global Investors. In its response, the £29 billion money manager said greater independence is needed on the boards of authorized money management firms, aligning the U.K. with frameworks in other markets. It highlighted the Irish system, which promotes independence of boards and clear guidance on how the governing bodies of money management firms should ensure investors' interests are protected.
The fee structure in money management was highlighted by a number of respondents, including Vanguard Group, which has $3.9 trillion in assets under management. It called for a “health warning” on fees as part of a “radically simplified” approach to investor communications. It wants these warnings to receive “equal prominence to those on past performance.” “Performance is a potential,” said Sean Hagerty, head of Vanguard's European business, in a statement related to the firm's response. “Costs are a certainty, hence why investors should focus as much, if not more, on costs. A 'health warning' on the impact of costs would be a clear sign of intent from the industry that it's putting the needs of the investor first.”
Orbis Investments, a manager with £15 billion in AUM, focused on the importance of aligning the interests of money managers and their clients, and said it would “fully support any initiative to encourage fund managers to come up with well-structured symmetric performance fees.” It also called for better enforcement of existing rules, rather than the FCA adding new layers of regulation.
The FCA started its Asset Management Market Study in November 2015, and published its interim report in November 2016. It is set to publish its final report in the second quarter.