LONDON, June 28 (Reuters) - Britain's markets watchdog has announced a broad overhaul of the country's 7 trillion pounds ($9 trillion) asset management industry to help ensure better value for money for investors.
Below is a list of the main steps the Financial Conduct Authority will take, and consultations for implementing them:
- There is weak competition in a number of areas. Firms do not typically compete on price, particularly in the retail market.
- There is "considerable price clustering" and charges for active funds have remained broadly stable over the last 10 years.
- Added to the industry's high profit levels and reluctance to lower prices to attract new business, price competition is not working effectively.
- Supports disclosure of a single all-in fee to investors. To consult on any proposals later in the year.
- Seeks a standardised template of costs and charges to institutional investors. To ask an independent person to work with stakeholders to develop idea further. Will consult on next steps.
- There is substantial variation in performance across asset classes and within them.
- On average, actively managed and passive funds failed to outperform their benchmarks after fees and it is difficult for investors to identify outperforming funds.
- Poorly performing funds are often merged into better performing funds, but it can take a long time to happen.
- Proposes to strengthen the duty on fund managers to act in the best interests of investors.
- To clarify expectations around value for money, increasing personal accountability and introducing a minimum level of independence in governance structures.
- To consult on steps to force fund managers to be clear about how they manage inflows and redemptions from funds where the company is itself an investor. Any so-called "box profits" should be returned to the fund.
- To make it easier for fund managers to switch investors to cheaper share classes.
- To seek views on introducing a phased-in sunset clause for trail commissions, where the fund management company pays a financial advisor for introducing them to a client.
CLARITY OF OBJECTIVES AND CHARGES
- Many active funds offer a similar exposure to that found in passive funds but charge more for it, so-called "closet index" funds.
- It estimates 109 billion pounds of assets are in such funds.
- Investors' awareness and focus on charges are mixed and often poor, particularly in the retail market.
- Will chair a working group to consider how to make objectives clearer and more useful for investors, before considering any subsequent rule changes.
- To consult on requiring managers to be clear about why or why not a benchmark has been used and requiring that their use or otherwise of benchmarks is consistent across marketing materials.
- To consult to clarify that where managers present past performance they must do so against the most ambitious target held out to investors.
- Recommends the Department for Work and Pensions (DWP) continue to review and, where possible, remove barriers to pension scheme consolidation, to achieve economies of scale.
INVESTMENT CONSULTANTS AND INTERMEDIARIES
- There are significant differences in both the behaviour and outcomes of different institutional investors.
- Large institutions can negotiate good value for money, but many smaller ones do not. Many do not switch consultants to get a better outcome.
- There are also conflicts of interest as some consultants also act as investment managers to some clients.
- Retail investors do not appear to benefit from economies of scale when pooling their investments.
- Proposes to reject proposals from Big-3 consultants to head off a formal competition review. To seek views from other interested parties and make a final decision on whether to refer the industry for a competition review in September 2017.
- Recommends the Treasury considers bringing investment consultants into the regulatory perimeter, subject to the outcome of the provisional market investigation reference to the Competition and Markets Authority.
- Will launch a market study into investment platforms to look at how competition is working in that market. ($1 = 0.7732 pounds) (Reporting by Simon Jessop, Carolyn Cohn and Huw Jones, editing by David Evans)