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Pressure increases on asset management industry

The Financial Conduct Authority (FCA) has recently published their findings following a market study of the asset management industry. Ross Middleton CA explains the implications.

Whilst the study had a broad remit, the main emphasis concentrated on performance, charges and the level of competition within the industry, particularly in relation to those firms offering collective investment vehicles, such as OEIC’s and investment trusts, to retail and institutional investors.

As a result of their findings, the FCA identified three main areas for reform:

1. Competition amongst asset managers

In order to improve competition, the FCA are recommending a number of measures including the introduction of an all-in fee for investors, standardisation on costs and charges and improving the reporting and disclosure of performance, fund fees and investment objectives.

2. Protection for investors

The proposals for helping protect investors are aimed at increasing accountability through such areas as introducing a minimum number of independent directors to a board, easing the process for investors’ transferring to lower cost share classes and improving governance.

3. Improve effectiveness of intermediaries

The main focus of this area will be a detailed review of investment platforms, particularly in relation to competition, and considering incorporating investment consultants, with a focus on those involved in the recommendation of funds, within the FCA’s regulatory remit.

Implications

The implications of this study are likely to result in greater transparency on costs and more standardisation on such areas as performance benchmarks. In addition, the study has resurrected the debate on active versus passive investment strategies.

As a result, there will be increased pressure on the industry, particularly active managers, to justify their fees. There have already been a number of changes to address this area and more are likely to follow. For example, many fund management groups have removed performance fees for their products.

Whilst some of the areas of the study will continue to be debated, in an environment where there is increased scrutiny on active management, any proposals that aim to increase competition and transparency and reduce costs with the asset management industry are welcome.

By Ross Middleton CA, Senior Investment Manager for Murray Asset Management and an ICAS Financial Services Ambassador.

This article was originally published on icas.com.