Financial Conduct Authority scores with fund manager crackdown

Shares in asset managers fell as the watchdog unveiled plans to shake up their cosy club to the consumer's benefit 

James Moore
Chief Business Commentator
Wednesday 28 June 2017 17:04 BST
The Financial Conduct Authority wants to curb the power of fund managers
The Financial Conduct Authority wants to curb the power of fund managers (Reuters)

The people who manage our money for us have got away with ripping us off for far too long. Hopefully that’s about to change.

After publishing a scathing report into the £7bn industry’s practices, the charges it levies, and the lack of any meaningful price competition, the Financial Conduct Authority is proposing to bring the hammer down.

The watchdog wants to see savers in future quoted a single all-in-fee by money managers, which would include the cost of the dealing charges they incur.

These are typically left out of the annual management fees they quote, and the impact they have on returns cannot be easily assessed as a result.

The plan would gave savers price transparency and is one of the most important reforms to the business that the city watchdog has proposed. It might take a little time for it to come on stream because the EU is working on legislation to similar effect, which makes things a mite complicated given the hash the Government is making of Brexit.

However, the change is coming and as reforms go, it is on the money.

Another proposal would see fund managers that charge performance fees having to return them if they later lose their investors money. There will have to be consultations on this, but again it’s hard not to cheer. The financial services industry gets away with too many one way bets. This would remove one of them.

A further investigation into fund platforms is proposed, and the watchdog wants the Government to let it take on oversight of the consultants who advise pension schemes and others on investments. In the meantime it wants the Competition & Markets Authority to take a careful look at their activities.

That would be another goal scored on the part of the FCA. Too many organisations cream off too much of the money we invest through charging absurdly high fees for providing “services” and “advice” from which we ultimately derive little value.

If this serves to curb that, then here’s a third cheer

It’s less clear how the FCA wanting to see the appointment of independent directors to fund boards will help. The watchdog believes it will assist with the push to get better value for money for investors. But for that to happen, these people will have to do their jobs.

The watchdog is proposing to restrict who can be appointed - they won’t be allowed to have had any prior business relationship with their fund’s managers for example.

But you only have to look at the behaviour of some independent non executive directors in the City to realise that the “independent” part of that title isn’t always what it's cracked up to be. They often don’t seem to do all that much for the fees they get paid.

That, however, is a small quibble, and I could be proved wrong.

While there's always more that could be done, what deserves an unalloyed welcome is the general direction of travel. The FCA has correctly identified that the fund management industry, which is going to be taking progressively more responsibility for looking after our pensions, among other things, has been operating as a cosy, and very profitable, club.

It has been getting away with this for far too long while other problems (such as those created by bankers) have taken precedence.

No longer. The biggest endorsement for the reforms proposed by the FCA comes not from me, but from the City. Shares in big asset managers fell in response to its report, suggesting that the market believes it will benefit the consumer at the expense of the industry’s profits. Good.

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