The Financial Conduct Authority (FCA) has published critical interim findings from its market study into the UK’s £7 trillion asset management industry, saying that “price competition is weak” and that profits remain high despite a large number of firms operating in the sector.
The FCA said it found “concerns” about the way the investment consultant market operates and published a provisional decision “to make a market investigation reference” on investment advisory services.
It said it intends to refer the investment consultancy sector to the Competition and Markets Authority (CMA).
In its interim findings on the overall asset management industry, the regulator said investors “are not always clear what the objectives of funds are, and fund performance is not always reported against an appropriate benchmark.”
The FCA is proposing a “significant package of remedies” to make competition work better in the asset management market and to “protect those least able to actively engage with their asset manager.”
These include a “strengthened duty” on asset managers to act in the best interests of investors and reforms to hold asset managers to greater account.
They also include the introduction of an “all-in fee” to make it easier for investors to see what is being taken from a fund, and measures to help retail investors identify the most appropriate fund.
Keith Skeoch, CEO of Edinburgh-based asset manager Standard Life said the firm welcomed any move that would help people understand the benefits from different approaches to investing — and Martin Gilbert, CEO of Aberdeen Asset Management, agreed there was a need for increased transparency on costs and services.
The FCA said more than three quarters of UK households with occupational or personal pensions use the services of asset managers.
The FCA said: “We found that price competition is weak in a number of areas of the industry.
“While the price of passive funds has fallen, active prices have remained stable.
“Despite a large number of firms operating in the market, the asset management industry has seen sustained, high profits over a number of years.
“Investors are not always clear what the objectives of funds are, and fund performance is not always reported against an appropriate benchmark.
“There are a wide range of investors in the institutional market.
“This includes many small pension schemes which rely heavily on the advice of consultants.
“We have found concerns about the way the investment consultant market operates.”
On its “proposed remedies” for the asset management industry, the FCA said: “We propose a significant package of remedies to make competition work better in this market, and protect those least able to actively engage with their asset manager.
“These include a strengthened duty on asset managers to act in the best interests of investors, reforms to hold asset managers to greater account, introducing an all-in fee to make it easy for investors to see what is being taken from the fund, and measures to help retail investors identify the most appropriate fund.”
The FCA added: “We are seeking feedback on our interim findings, our proposed remedies and our intention to refer the investment consultancy sector to the Competition and Markets Authority (CMA).”
Andrew Bailey, FCA chief executive, said: “Asset managers are responsible for the savings of millions of people in the UK, making decisions which affect their financial well-being both now and in the future.
“In today’s world of persistently low interest rates, it is vital that we do everything possible to enable people to accumulate and earn a return on their savings which can meet their lifetime needs.
“To achieve this, we need to ensure that competition in asset management works effectively to minimise the cost of investment.
“We want to see 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. The remedies that we are proposing today aim to achieve these outcomes.”