More than 40% of 145 U.K. money managers fail to disclose costs associated with individual funds based on the Financial Conduct Authority's value assessment criteria, said the CFA Society of the U.K. on Monday.
Following its Asset Management Market Study, which in 2017 concluded that U.K. investors could receive better value for money from their managers, the FCA urged money management firms to check and report back to investors on whether their funds' performance was in line with benchmarks, as well as state the funds' investment objectives, assess the quality of their services, merge strategies that could benefit from scale, charge fair fees, offer fees comparable to market rates and reduce third-party costs.
Based on assessment of value reports published by U.K. investment firms in 2019 and 2020 with a total £1.3 trillion ($1.78 trillion) in assets under management, the CFA concluded that 24% of the firms did not clearly outline their funds' investment objectives, while only 20% of the reports used customer surveys or independent external firms to measure the quality of their services.
While two-thirds of managers' reports showed comparisons of their funds with indexes, 58% of all reports did not specify whether these funds outperformed or underperformed.
"A number of the reports analyzed were excellent and the improvements in quality seen over the course of the year also indicate that publishers are learning from what others in the sector are doing and responding to negative feedback on some earlier versions," said Will Goodhart, CEO of CFA of the U.K., in a news release.
"However, the overall weaknesses of reporting need to be addressed so that we can make these reports genuinely useful to investors. We should regroup as a profession to identify a clearer set of recommended practices that fund boards can use when compiling these reports. These recommendations should be developed based on good practice and with support from the FCA," Mr. Goodhart added.
The CFA recommended that managers publish the reports clearly on their websites alongside other mandated documents, such as fund fact sheets. In its investigations the CFA could locate only 75% of relevant documents.
Further, managers should comment on their strategies' environmental, social and governance inclusion, risk and liquidity even though the FCA value assessment does not require these disclosures. Some 76% of managers made no reference to how ESG factors are included in strategies, while 62% of the reports did not mention risk and 87% did not comment on fund liquidity, the CFA said.
