In 2013, the Financial Conduct Authority (the City’s Financial Watchdog) adopted a reform relating to fees charged to investors for fund management and financial advice. It decided to ban the “bundling of charges” and to stop fund groups from paying commission to advisers. The idea behind this reform is that since fund managers are no longer passing on money to advisers and brokers, the price of funds will come down.
However, it seems that asset managers are struggling to enforce this reform. In its review published in November 2016, the FCA stated that “[…] analysis shows mainstream actively managed fund charges have stayed broadly the same for the last 10 years (…)”.
This statement is confirmed by data from Fitz Partners: “more than two-thirds of the assets managed for retail investors remained in the more expensive funds in 2015”.
To explain these poor results, assets management firms explained to the FCA that “they create new share classes (but) they find it difficult to switch investors to these new, cheaper share classes even if this would be in the best interests of existing investors. This is because they currently need the investors’ consent to transfer them to alternative share classes and many investors do not respond to communications”. Why would investors be interested in saving money, right?
To remedy this issue, some suggested that fund managers should just reduce the charges, instead of waiting for investors to give their permission, but the Investment Association did not comment on that suggestion. Instead, it declared that it would “like to work with regulators to make it more straightforward to switch investors on the cheaper charging structure”.
Questioned on those figures by The Financial Times, Prof. Andrew Clare said that “ it is hard to rid the industry of its dependence upon and liking for the old world of commission”.
Answering the Investment Association, the FCA reminded them that there is no rule per se requiring asset managers to move investors into the cheaper share class and that there were only “expectations” to reduce those fees. The FCA declared that it would work on ways to make it easier for asset managers to “bulk transfer” investors to alternative share classes where it is in their best interests.
Questioned on those results, BETTER FINANCE declared that it had hoped that the regulator would “ delve deeper” into this issue.
Read the Financial Article here
Consult the Asset Management Market Study published by the FCA here