FCA slams buy-side for enjoying high profits as investors foot the bill

UK regulator’s market study reveals limited price competition in actively managed funds and proposes reforms to protect investors.

The UK’s Financial Conduct Authority (FCA) has called out the buy-side for enjoying high profits as investors pay high charges that are often not justified by returns, according to the regulator.

In a market study that assessed competition in the asset management industry, the FCA found limited price competition for actively managed funds meaning investors are forced to pay higher charges.

It found fund objectives are not always clear and performance not always reported against an appropriate benchmark.

The FCA has proposed a ‘package of remedies’ to improve competition and protect those less able to engage actively with their asset manager.

The buy-side face greater responsibility to act in the best interest of investors, increased transparency, standardisation of costs and pressure to clearly communicate fund charges.

An ‘all-in’ fee has also proposed so that investors can easily see what is being taken from the fund.

Andrew Bailey, chief executive at the FCA, said the regulator is striving for “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,” he added.

The Investment Association has supported the FCA’s objectives and vowed to work with the regulator to further understand its findings in the market study.

Chris Cummings, chief executive officer at the Investment Association, said: “We support the FCA's objectives to ensure that competition in the industry works to the benefit of its customers, whether individuals, families or institutions.”

Andrew Glessing, head of regulation at Alpha FMC, commented that the industry can expect greater scrutiny on corporate governance and strategy.

"There will be heavier burdens of responsibility on senior management, a need for enhanced product governance and active find managers in particular can expect more external pressure from stakeholders as the FCA intervenes to drive price competition," he said.