The Financial Conduct Authority (FCA) is under pressure to reveal more details about the payment by asset managers of £34m in compensation to investors who overpaid for 'closet tracker' funds, as it is revealed some consumers may not even know they have been reimbursed.
The FCA told Investment Week that if there was a direct payment to individuals they would have been contacted by the provider, but where the compensation is paid into the funds they would not necessarily be made aware of a payment.
In addition, the regulator is currently not revealing how many investors have been reimbursed or which asset managers and funds are involved.
Adrian Lowcock, investment director at Architas, said greater transparency was required "not to apportion blame but to create confidence in the system".
"The issue of closet trackers has been hanging over the industry for some time and I am glad to see the FCA has made progress on this issue to ensure investors are appropriately compensated," he said.
"However, we also need to make sure the industry can learn from this and make the necessary changes going forward, ensuring that this sort of behaviour isn't repeated in the future.
"To do this we need a clearer explanation of the issues the FCA had and better transparency for investors to know which funds were affected and how....[to give] investors the opportunity to make a change to their investment if appropriate."
Ben Yearsley, director at Shore Financial Planning, said: "The key for me is needing a bit more information. It feels like the FCA has done a lot of work to investigate this, but by not publishing full details it seems like there should be more publicity.
"It is not clear how we should learn from this. The industry will not benefit from this and it does not help investors. It feels like the financial services industry is still an old boy's club. They should be clear on the tools to make sure it is not repeated and make sure investors are put at the forefront.
"I do not like the idea of naming and shaming but at the same the lack of transparency creates suspicion. The message should be we are open and transparent and that is not the message which comes out from this. The closet trackers are still in the closet."
According to a report in The Telegraph over the weekend, the groups involved have compensated investors for the higher active charges they paid on what were in reality index tracker funds, although the move is not part of an official redress scheme from the regulator.
Managers involved will also have to change their marketing material, and in the more serious cases of misleading investors they will have to notify existing investors.
In addition, another asset manager is also facing enforcement action from the FCA. In this case, the regulator felt the company's marketing material was "very misleading" and so required "being taken a step further", a source close to the situation said.
The FCA's examination of closet trackers pre-dates the publication of its Asset Management Market Study. Its recent investigation is understood to be part of ongoing supervisory work and was carried out over the past 18 months. The FCA looked at funds which significantly mirrored the underlying constituents of the benchmark over a long time-period using several metrics, particularly analysing those where disclosures did not adequately explain how the funds operated.
In her article for The Telegraph, Butler said the regulator is "taking action on asset managers that aren't transparent with clients".
"We expect fund managers to take their duty to their consumers seriously. They should manage their funds the way consumers expect them to and tell consumers what they are doing.
"That is why clear promotional material for investment funds is a priority for us. When we're aware that firms haven't been clear, we have a range of powers that allow us to intervene to protect consumers," she said.
The Investment Association (IA) said it is "absolutely right" that savers and investors can clearly see a fund's targets, what it delivers and the cost.
A spokesperson for the IA said: "The IA and the industry have engaged with the FCA throughout the Market Study process, and set out a number of proposals to make information about investment objectives, as well as the associated charges and transaction costs, as accessible and transparent as possible.
"With the FCA set to unveil the next phase of Market Study implementation, we look forward to working further with the regulator to ensure a customer-focused approach across the market."
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