UK Launches Asset Management Review
The Financial Conduct Authority, the UK regulator, has launched a review of competition in the asset management industry which will cover charges and whether there are barriers to innovation or technological advances.
The regulator said in a report that the UK is the largest fund management market in Europe with around £6.6 trillion invested – 80% on behalf of institutional investors, including pension funds, and around 20% on behalf of retail investors. The City UK estimates that £775bn of UK managed assets were for overseas pooled funds at the end of 2013, around three-quarters of which were for funds domiciled in Luxembourg and Dublin.
Despite the higher charges the majority of assets are under active management, with less than 22% of assets invested passively, although this has been growing. The average annual management charge for active management is 1.2%, more than double the 0.5% for passive funds.
“An improvement in competition that reduced total charges paid by investors by a small amount could have a large impact on investors’ net returns,” said the FCA.
For example, a charge of 1.5% as opposed to 0.3% on £20,000 invested for 20 years with 6% growth would cost an investor an extra £12,789 over the period. An estimated 14.2 million pension savers and 11 million retail investors could benefit from improved competition.
The ten largest asset management firms operating in the UK account for around 55% of total assets under management. The total number of firms is now 1,787, a 10% increase since 2008. Over the same period, UK assets under management increased by 83% due to both new inflows and market movements.
Guy Sears, interim chief executive of The Investment Association, said in a statement: “We agree it is essential the whole investment chain functions effectively for its clients. We welcome the FCA’s decision, alongside its core focus on investment managers, to also consider the role of distributors and investment consultants, reflecting their critical role in delivering the best outcomes for our clients.”
Last month The Investment Association said Daniel Godfrey, the former chief executive, was leaving his role with immediate effect.
Godfrey told the Financial Times that compensation at fund manager needs to be reformed and they need to provide more transparency on costs.
This month Investment Association said in a statement that it welcomed the publication of draft European Union rules for presenting key information about investment products to consumers, including costs and charges.
Jonathan Lipkin, director of Public Policy at the Investment Association, said in a statement: “Although the Key Information Document is of course wider in scope than investment funds, we consider that the ‘ongoing charges figure’ (OCF) is a valuable piece of information and we will continue to encourage the European regulators to retain the OCF as a key part of disclosure.”
The FCA aims to publish interim findings on its review in the summer of next year and a final report by the early 2017.
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