The industry has welcomed the Financial Conduct Authority’s latest steps in implementing the Asset Management Market Study as the regulator declined to set rules on the disclosure of ‘a single charge’ to investors.

The FCA issued its final report following a consultation last year that raised concerns about a lack of competition in the asset management industry.

Policy statement: implementing asset management market study remedies and changes to our Handbook (PS18/8) https://t.co/5Fjd7qNooy

— FCA (@TheFCA) April 5, 2018

The recommendations include a requirement for fund managers to make an annual assessment of value;  the appointment of a minimum of two independent directors to their boards; the introduction of a new prescribed responsibility under the Senior Managers and Certification Regime; and technical changes to improve fairness around the way in which fund managers profit from investors buying and selling their funds and facilitate the movement of investors into cheaper share classes.

Christopher Woolard, executive director of strategy and competition at the FCA, said in a statement: “Our market study found evidence of weak price competition in a number of areas. Firms have 18 months to implement the rules on assessment of value and appointment of independent directors and 12 months for the rules related to the way in which fund managers profit from investors buying and selling their funds.”

Saker Nusseibeh, chief executive of Hermes Investment Management, said the UK fund manager welcomed the FCA’s announcement:

Hermes responds to the FCA’s announcement on the latest steps in implementing the Asset Management Market Study – UK Wholesale https://t.co/6uoblIcFoc

— Hermes Investment (@Hermesinvest) April 5, 2018

Nusseibeh said Hermes has long advocated that good governance is a cornerstone of active investing.

“Our Responsibility team is accountable for developing and integrating responsibility across the business alongside the Investment Office, which is answerable to clients for the investment teams’ consistent delivery of responsible, risk-adjusted performance and adherence to the processes which earned them their kitemarks,” added Nusseibeh. “As an active manager with high active share, we share the view that true active management is rare, but that transparency is an integral part of the reporting process.”

However, he continued that one area that needs more dialogue is around stewardship and a more sustainable form of capitalism over the long-term.

Virginie O’Shea, research director at consultancy Aite Group, said:

The G part of #ESG is getting attention from the FCA – much debate about whether the measures go too far or not far enough. https://t.co/jB1lMzoKjY

— Virginie O'Shea (@virginieoshea) April 5, 2018

Andrew Strange, director of PwC’s Financial Services Risk & Regulation Centre of Excellence, said in a statement that  independent non-executive directors can bring an important perspective to a board, but they are not a panacea and must be seen in the context of wider governance and board specialism.

The FCA estimated that over three quarters of the country’s population rely on the asset management sector either directly, or via their pensions, so  even small differences in charges can have a significant impact over time. However the FCA declined to set rules on the disclosure of ‘a single charge’ to investors due to incoming European Union regulations. MiFID II, the EU regulation covering financial markets came into effect in January this year, changed the requirements for disclosing costs. In addition cost disclosure is also included in the EU Packaged Retail and Insurance-based Investment Products Regulation (PRIIPs) Regulation, which covers most investment products and is due to come into force on 31 December 2019.

The FCA said: “MiFID II and the PRIIPs Regulation have recently introduced greater disclosure of all costs and charges. In addition, the PRIIPs Regulation requires providers to set out a recommended holding period to investors. We do not think it is proportionate to introduce our own rules to do this before the PRIIPs Regulation applies to funds from 2020.”

The regulator continued that as a result of these new EU regulations consumers should now see the full costs and charges, expressed as a single fee, for most transactions in investment products, and on an ongoing basis.

“This is a significant step forward, but how the new information is presented will be important if it is to help consumers make more informed choices,” added the FCA.  “We will consider changing our rules and guidance to mandate certain forms of disclosure in light of the outcome of our Investment Platforms Market Study.”

The FCA added that it is supporting an independent Institutional Disclosure Working Group which is looking to reach an agreement on disclosure of costs and charges to institutional investors and that it has also referred the investment consultancy market to the UK Competitions and Markets Authority for investigation.

However SCM Direct, the fund management company led by Alan & Gina Miller, condemned the FCA report:

#FCA report today re improving the UK asset management industry was underwhelming and disheartening when you consider its been 18 yrs since their own damning hidden fees report. Ordinary consumers continue to be treated as 2nd class citizens – Shameful! https://t.co/9TgzpAZD9z

— SCM Direct (@SCMDirect) April 5, 2018

Strange argued that the FCA has struck a pragmatic balance between prescriptive rules and flexible guidance:

FCA’s asset management market study statement strikes pragmatic balance says @astrangepwc https://t.co/J2IiCceIZf

— Ellie Raven (@ellieraven_pwc) April 5, 2018

He said in a statement: “Changes to focus on wider value, rather than just charges, will better enable firms to demonstrate this value to their customers, although the new public statements could risk overloading consumers with information.  However, updating guidance to make it easier for firms to switch investors to cheaper versions of the same fund is an example of the regulator helping firms deliver value.”

Strange continued that it is refreshing to see the FCA using behavioural techniques and customer research. “Many of the proposals originated from working groups run in conjunction with the industry, which should result in workable solutions that benefit consumers,” Strange added.

Alexander Dorfmann, director product management on the financial data side of SIX, the Swiss exchange, said in an email: “The fact that the FCA is starting to publish firm policy direction is a positive step, as it brings greater clarity and priority to the PRIIPs and MiFID II implementation work carried out by asset managers.

Dorfmann continued that the FCA study reinforces the importance of adopting flexible compliance systems that can be adjusted in response to any recommended changes and clarifications.

In contrast Mick McAteer, co-director of the Financial Inclusion Centre, said:

FCA Policy Statement on Asset Management out this morning: as expected some good stuff on transparency and senior managers but not a game changer, disappointing overall https://t.co/j3uzvAkbUH

— Mick McAteer (@MickMcAteer) April 5, 2018

The Investment Association, which represents asset managers in the UK, welcomed the FCA report:

The IA welcomes the FCA’s announcement today on the latest steps in implementing the Asset Management Market Study https://t.co/fDI7UE7ARc pic.twitter.com/1PWuEOkDop

— The Investment Association (@InvAssoc) April 5, 2018

Chris Cummings, Chief Executive of The Investment Association, said in a statement: “We welcome the FCA recognising that people judge their asset manager by investment performance and service, as well as cost. We strongly support a greater emphasis on communication as well as governance to help customers better understand what they are investing in, what they are paying for and what they are getting in return.”