A Fund Board Council (FBC) report has found that a majority of independent directors expect to spend less time completing their assessment of value (AoV) reports for 2021 than in their first year and have not changed tack on how they discuss fund performance despite criticisms that asset managers are marking their own homework.
According to the FBC’s second annual report on the state of independence on fund boards, 50% of independent non-executive directors expect to be spending less time on the second round of reports now required by the Financial Conduct Authority.
A further 40% of the 130 respondents surveyed said they anticipate spending the same amount of time on the AoV reports as they did in year one. Only 10% said they expect to spend more time on the reports.
This comes despite the fact that fund boards’ first batch of AoV reports have come under fire for not being up to scratch.
In year one, the majority of respondents (37.5%) said they and their AFM colleagues had devoted more than half but less than three quarters of their time in meetings, calls and working groups over a 12-month period to the AoV report. This compares to 25% who spent more than a quarter but less than half their time on the reports and 30% who spent less than a quarter on the assessments.
‘Less executive focus and time being spent’ on second AoV reports
The FBC report said there is a strong consensus among independent non-executive directors that value reports need to be built into “business-as-usual” product governance activities, rather than treated as a once-a-year outing.
“It is now the annual product review on steroids,” said one global head of product at one of FBC’s corporate member firms.
But the FBC said subsequent discussions with iNEDs suggest their expectations AoV reports will take up less time may be somewhat optimistic, as the emphasis of their focus changes from “build” to “bed-in”.
One respondent lamented that there was “less executive focus and time spent” on the second batch of AoV reports compared to the debut assessments. “Perception (is) that (the business) can easily build on year one. This has been challenged by iNEDs.”
See also: Fund boards warned there’s more to showing value than just producing a report
Fund boards not changing tack on performance discussions
In addition to spending less time on the AoV reports, iNEDs also admitted their approach to the assessments the second time around had largely gone unchanged.
Around 35% of respondents said they “somewhat agree” there has been no change in approach since year one, while 27.5% neither agreed or disagreed and 22.5% said they “somewhat disagree”.
One area fund boards have been accused of falling short in their AoV reporting is around fund performance. Portfolio Adviser has extensively reported on how asset managers have scored themselves top marks, even in cases where a significant proportion of their funds have been flagged for poor performance, leading to accusations that many are simply marking their own homework.
The majority of FBC’s respondents (54%) said that there have been no significant changes to how they discuss performance since the introduction of value reports compared to 46% who said the conversation around performance had changed.
An even bigger proportion (62.2%) said the reports have not impacted the length of time for which a fund is on ‘watch’ before action is required.
See also: Value assessments expose ‘scandalous’ inaction over investors in legacy share classes
‘Response to challenge was initially one of surprise from investment and product specialists’
However iNEDs were hopeful that the AoV reports would steer the conversation around performance in the right direction.
One respondent said that any influence the reports are having on changes in performance discussions are “difficult to evidence” but it is “more likely that performance challenges will rise to the top and get board level attention earlier”.
Another respondent said they had noticed less resistance from product and investment specialists to iNEDs challenging them on fund performance.
“It is difficult to say what happened before, but I have found the response to challenge was initially one of surprise at our rigour and persistence from the investment and product specialists,” they said in the report.
“The good news is that the quality and depth of the regular investment reviews has improved markedly over the period.”
