FCA asset management market study - publication of final report

The FCA has today (28 June 2017) published its final report in relation to the asset management market study. This study was launched in November 2015 to assess whether competition was working effectively in the asset management sector and whether investors are getting value for money.

The FCA has also published a consultation paper in respect of some key remedies. The deadline for responses is 28 September 2017.

The final report broadly confirms the findings identified in the interim report including the finding of weak price competition particularly for retail active asset management services, that fund performance is not always reported against an appropriate benchmark, and investor awareness and focus on charges is often poor. However it does delay the implementation of a number of controversial remedies, including the introduction of a compulsory all-in fee, until further consultation has been conducted.

The interim report

The interim report, published in November 2016, set out the FCA’s proposals for change in the industry. The FCA was concerned the industry lacked transparency with investors on costs, objectives and performance and that there was weak price competition. The FCA consulted on a number of potential remedies, including the introduction of an all-in fee and a strengthened duty on asset managers to act in the best interests of investors.

Proposed remedies subject to consultation

The FCA will continue to consult on the following remedies:

• a strengthened duty on asset managers to act in the best interests of investors through value for money, increased accountability through the Senior Managers and Certification Regime and minimum level of governance structures
• requiring fund managers to return any risk-free box profits to the fund, and
• facilitating switching investors to cheaper share classes.

Final remedies to be implemented by the FCA

The FCA will implement the following final remedies:

• the recommendation to the Treasury to bring investment consultants within the regulatory perimeter
• the recommendation to the Department for Work and Pensions to remove barriers to pension scheme consolidation and pooling
• to agree a standardised approach to the disclosure of costs and charges to institutional investors through a working group, asking an independent chair to convene relevant stakeholders to develop this further and working with stakeholders to consider whether any other actions are necessary, and
• launching a further market study into investment platforms.

Remedies for which the FCA will consult at a later stage

The FCA plans to publish consultations at a later stage on the following remedies:

• proposals on costs and charges disclosures to retail investors, including the disclosure of a single all-in fee to investors (MiFID2 will introduce this for investors using intermediaries)
• benchmarks and performance reporting, and
• the FCA will form a working group to consider how to make objectives clearer and more useful for investors.

Market investigation reference to the CMA for institutional investment advice

The FCA proposes to reject the undertakings-in-lieu offered by the three largest institutional investment consultants which sought to avoid the proposed reference to the CMA as a result of the findings identified by the FCA in respect of the investment advice market.

The FCA will continue to consult on the undertakings-in-lieu and the proposed reference of investment consultants to the CMA. The consultation closes on 26 July 2017, with a decision expected by September 2017.

Next steps

Simmons & Simmons will host a Webinar session on 05 July 2017 for clients in order to provide more detailed commentary on conclusions the FCA has reached in its final report.