In November 2016, the FCA issued an interim report calling for industry response by today (20 February) after highlighting concerns over weak price competition, fee ‘clustering’ on actively managed equity funds, poor economies of scale – with fund charges not reducing as assets under management (AUM) increase, all while passive funds continued to come down in line with market forces.
Old Mutual Global Investors (OMGI) has made five headline recommendations: enhanced fund governance to match that of other international jurisdictions; a single fund charge inclusive of fees associated with the management and ancillary services of funds – but excluding transaction costs; greater clarity regarding investment objectives – yet allowing for fund manager flexibility; easier movement into cheaper share classes; and a move away from focusing on past performance.
Meanwhile Orbis Investments UK said often the performance fee structures across Europe are structured to ensure the investment manager receives both a guaranteed share of assets under management and a share of the upside, leading to a ‘heads we win, tails you lose’, proposition for investors.
Dan Brocklebank, head of the group, said: “The FCA’s report points to a disappointing gap between the robust standards laid out in the current regulatory framework and actual industry practice.
“We therefore believe there is ample scope for the FCA to improve consumer outcomes by pursuing more rigorous and effective enforcement of existing rules, before adding additional layers of regulation.”
Vanguard, unsurprisingly, is calling on a ‘health warning’ putting fee erosion as high on the list of investor priorities as performance.
It said fee warnings should receive equal prominence to the standard industry disclaimer over focusing on past performance, and said fee and performance disclosure should be made “radically simpler”.
Yet Richard Buxton, chief executive of OMGI, defends the position of active managers, suggesting the few ‘closet trackers’ should not be allowed to taint the entire industry.
