A new effort by the U.K.'s financial services watchdog to ensure that money managers are delivering value to their institutional and retail investors is prompting firms to inspect the performance of funds and look to consolidate offerings to achieve greater scale.
Some sources said more intense scrutiny from the Financial Conduct Authority in the first half of 2020 could lead more managers to consider shutting down strategies with similar objectives and trimming performance and annual management fees as well as third-party expenses such as audit costs.
The FCA wrote to the CEOs of money management firms operating in the U.K. on Jan. 20, urging them to change fee structures and investment strategies that are not benefiting investors.
Wanting to see firms effectively and regularly assess their offerings, the FCA will seek confirmation that boards challenged senior executives to improve outcomes for investors. "We will seek evidence of meaningful challenge at authorized fund managers' boards on proposals made by the executive — including on costs, fees and product design," the FCA said in the letter.
The letter stems from the regulator's earlier investigation into the business of money managers — the Asset Management Market Study, which in 2017 concluded that U.K. investors could receive better value for money from their managers.
As a result of that study, firms have been required since Feb. 4, 2019, by the FCA to review their funds' performance objectives and, since Sept. 30, state on their websites through an annual value assessment report how they contribute to their investors' goals. Firms must publish their value assessment report in their long financial report within four months from the end of the last annual accounting period at the latest.
Andrew Glessing, head of regulatory compliance at Alpha Financial Markets Consulting PLC in London, who used to supervise money managers at the FCA, said the regulator's move not to prescribe a template for how it wants firms to show value assessment was deliberate. "The FCA doesn't want managers to collude," he said.
In the first half of 2020, the FCA will be examining managers' efforts to assess if:
- Their funds' performance was in line with benchmarks.
- They have been providing investors with quality services.
- Their funds could benefit from merging.
- Their fund fees and third-party costs could be reduced.
- They offered investors rates and services comparable with market rates and services.
- They adopted fair fee structures for all types of investors.