Asset Managers to Face Scrutiny Over Costs, Value in FCA Study

LONDON-U.K. authorities have launched an inquiry into whether there is enough competition in the country’s investment management industry. This includes around £2.1 trillion of pension fund investments, £1.2 trillion in retail investment products and £400bn in public sector and charity investments.

The financial watchdog said its market study will focus on three areas: how asset managers compete to deliver value, whether they are motivated and able to control costs along the value chain and what effect investment consultants have on competition for institutional asset management.

“We want to understand whether investment consultants are incentivised to suggest or promote investment strategies which may increase their business, but which may not be in the best interests of the investor”, the FCA said. The industry has been criticised over many years for high fees that eat into savers’ pensions, even as the government is encouraging people to set aside more money for old age.

The regulator will also look into the metrics consultants use to select preferred funds, asking whether they provide value for money, act as barriers to entry, and affect manager behaviour.

It comes in response to concerns raised in a previous FCA study, in which a few participants suggested there could be anticompetitive practices in asset management. “We can do this through rule-making, introducing firm-specific remedies or enforcement action, publishing general guidance or proposing enhanced industry self-regulation”, the terms of reference said.

The asset management’s trade body, the Investment Association (IA) is also pleased with the FCA’s plans. The 1.5 per cent charge has typically translated into a 0.75 per cent fee post-RDR following the unbundling of charges.

The FCA expects to narrow the study’s focus as it proceeds, and will publish an interim report next summer with a final report in early 2017.

The Financial Conduct Authority (FCA) has announced an investigation into whether consumers are being well served by companies investing savings and administering pensions.