The retail asset management industry has largely welcomed the Financial Conduct Authority (FCA)'s bids to improve transparency and value for money within asset management in its Final Report of the market study, but there are concerns surrounding some of the governance "remedies" and how long additional consultations will take.
In the Final Report of its Asset Management Market Study into competition in the sector, published today, the regulator has responded to feedback from last November's Interim Report, which was extremely critical of the actively-managed funds industry.
Despite recognising the need for "further work" in light on incoming EU regulations, the FCA backed the introduction of an "all-in-fee", incorporating asset management charges and an estimate of transaction charges.
Jake McQuitty, partner at UK law firm TLT, said the the measures mean managers will be forced to act in the best interests of clients.
"Today, the FCA has hit the nuclear button and ended a decade of mild encouragement, sending a clear message to the asset management sector that it not only expects but now demands a transparent, customer-focused approach, particularly in relation to pricing and investor outcomes.
"Now begins a new era of governance and enforcement, which aims to shift the cultural plates and operational practices in the asset management sector and promote effective competition.
"Under the new rules, managers will be mandated to act in the best interests of investors, and to present investors with an all-encompassing fee that includes trading costs.
Monica Gogna, financial regulation partner at Ropes & Gray added the FCA's position was a "common sense approach to transparency."
"It is pleasing to see an acknowledgement by the FCA that the industry is doing much to bolster its efforts to increase transparency, while also allowing the crucial time and consideration required to see how MiFID II would affect such measures."
FCA's Bailey: We expect to see active fees come down
Sean Hagerty, managing director, Europe at Vanguard welcomed the regulator's position and said it was an "opportunity" for the industry "to reassure" investors.
"Our own proprietary research demonstrates the impact of cost on performance. Our findings show that too many funds fail to meet their performance benchmarks, largely because of the charges they levy.
"As an industry, we have an opportunity to reassure people that investing can be a force for good, and for many people, a sensible way of providing for the future."
Moody's senior analyst Marina Cremonese noted the report is good news for passives: "Momentum in the shift to passive investing accelerated today with FCA's proposed remedies which will negatively pressure active asset managers' profit margins.
"Initiatives like these which aim to promote transparency of fees [combined with other new regulatory rules such as MiFID II] will lead to greater usage of lower-cost passive options, like ETFs, where there is significant room to grow.
All-in fee
While backing the all-in-fee proposal, Martin Gilbert, chief executive of Aberdeen Asset Management, said it would prove more difficult for certain asset managers.
"Incorporating dealing charges for equity funds should be straightforward particularly for those managers, like ourselves, who have low portfolio turnover.
"It is more challenging to calculate all-in-fees for bond funds, but I am encouraged that the industry is already looking at ways of doing this. We need to embrace the concept and commit to finding a solution for the best interests of clients."
