James Moore: Why fund managers are no better than bankers

 

Outlook With all the justified fuss about yet more misdeeds committed by the banking industry it’s easy to forget that there are other parts of the City where problems are quietly festering.

Take fund management. Aviva Investors has just been hit with £18m in fines by the Financial Conduct Authority, and had to pay £132m in compensation to a number of its funds.

At issue was its traders’ practice of cherry-picking. The fund manager was organised so that they looked after multiple funds from the same desk. Because of the way bond trades were allocated, they were able to sit back and wait to see how their various trading positions performed and then allocate the successful ones to the funds with the highest fees.

Appalled? You should be. It probably won’t come as any surprise that the traders involved – sorry, former traders – got a cut of the fees, and, as such, were effectively incentivised to cheat.

The disadvantaged funds have now been put back into the position they should have been in and Aviva Investors has promised that it will clean up its act.

However, it does put into context a problem the Institute of Directors raised when the FCA decided to launch an investigation into competition in the corporate and investment banking markets.

The IoD wasn’t averse to the FCA’s action – in contrast to the banking industry, which was quietly fuming at the prospect of yet more regulatory upheaval.

But it argued that the regulator might do better to shift its attention towards the fund management industry. One of its reasons was concern over pay, fees and transparency in the sector.

In the wake of the fine, its concern appears more than justified. The FCA would do well to heed it.

Comments