City watchdog proposes shake-up for fund management

The UK's financial watchdog has outlined a major shake-up for the fund management industry to ensure investors get a good return in an era of low-interest rates.

The FCA said investors should be offered an 'all-in-fee' to make charges clearer. Picture: Daniel Leal-Olivas/AFP/Getty Images

The Financial Conduct Authority (FCA) said investors should be offered an “all-in fee” so they can easily see the amount taken in charges from their investment returns.

The UK’s asset management industry is the second-largest in the world, with asset managers overseeing the savings of millions of people.

But in an interim report of its asset management market study, the FCA found that investors were being stung by higher charges because price competition was weak within the industry.

Chief executive Andrew Bailey said: “In today’s world of persistently low interest rates, it is vital that we do everything possible to enable people to accumulate and earn a return on their savings which can meet their lifetime needs.

“To achieve this, we need to ensure that competition in asset management works effectively to minimise the cost of investment.

“We want to see greater transparency so that investors can be clear about what they are paying and the impact charges have on their returns.

“We want asset managers to ensure investors receive value for money through pursuing energetically their duty to act in their customers’ best interests.

“Low interest rates are necessary for the economy, but we have to do everything else we can to ease the burden on savers.”

The report also wants to introduce measures to make it easier for retail investors to move into better value share classes. It said it would explore the benefits of pooling pension scheme assets and wants information on costs and charges to be standardised.

The FCA said it will now put the report out to consultation, before publishing its conclusions next year.

Mike Walters, head of investment management regulation at KPMG UK, said the report represented a “fundamental challenge” to value for money the industry provides to savers and investors.

He said: “Firms need to think carefully about how to communicate to investors what value they add. I expect to see some consolidation of firms and funds as governance committees, intermediaries and investors increasingly question the level of fees relative to fund performance.

“But we mustn’t lose sight of the fact that whilst the FCA found that on average the performance of actively managed funds does not represent value for money, many out-perform and some provide access to certain markets passive funds just can’t.”

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