The retail asset management industry has largely welcomed the Financial Conduct Authority (FCA)'s bids to improve transparency and value for money within asset management in its Final Report of the market study, but there are concerns surrounding some of the governance "remedies" and how long additional consultations will take.
Fees and performance
The FCA maintained its critical view of its data's revelations about the relationship between fees and returns.
Jake Green, regulation partner at law firm Ashurst said this was a fair assessment.
"Some in the industry will find it brutal - but it appears hard to argue with. The fact that there was found to be no relationship between charges and gross performance makes for stark reading.
"While the industry may say that MiFID II should in itself provide costs and charge disclosure solution, this appears to go beyond - the saving grace may be in the form of standardisation.
"Again we see the shadow of the SMCR hovering closer over the asset management sector. It is mentioned frequently and the FCA expects it to help draw fund managers attention to acting with the best interests of the investors in mind.
"Indeed, the line between whether an investor is (legally) a 'client' (generally they are not) is eroding."
Fund groups step up lobbying of FCA ahead of Final Report
Richard Wilson, CEO of online investment platform Interactive Investor, also backed changes in how investors are charged.
"Current percentage-based fees in the fund management industry mean that the greater the investment the larger the fee," he said.
"Customers should not be penalised for investing larger amounts and our annual flat fee ensures that returns made by our customers stay with our customers."
Fund governance
Another significant shake up proposed by the FCA is the introduction of independent board members, as is the case in many other global jurisdictions.
Aberdeen's Gilbert said this was a positive development.
"I am a vocal advocate of the benefits of involving independent directors in fund governance, having seen how they help elsewhere in the world."
However, Gilbert said the FCA has not gone far enough on its fund governance proposals.
"While supporting the FCA's general moves in this direction, Aberdeen would advocate going further than the FCA currently suggests by introducing two independent directors on to the Boards of UK open-ended fund ranges.
"This introduces a separate and independent level of oversight from that undertaken by the manager, with an exclusive focus on the interests of fund shareholders as distinct from firms' own commercial interests - a point which the FCA acknowledges in its consultation paper.
"I firmly believe that these remedies will not only benefit customers but will ultimately strengthen confidence and competitiveness in the UK asset management industry."
However, James Trask, investment partner at LCP, is concerned about ramifications for institutional investors: "We welcome the consultation on the appointment of independent directors to fund boards and in particular a requirement for the fund board to justify differences in fees charged to different sizes of investor.
"This has potentially huge ramifications for asset managers who charge retail clients fees that are multiples of those levied on large institutional clients.
"While this is on the face of it good news, it would be disappointing if an unintended outcome was an increase in institutional fees."
Carl Richards, Baker McKenzie's employment partner, said the key message from the report is protection for investors and strengthening the duty on fund managers to act in their best interests, which is a precursor to the FCA's extension of the Senior Manager and Certification Regime - which is set to apply to asset managers in 2018.
"In our experience, banks and larger financial institutions who have been subject to the SMCR since its inception in March 2016 have seen a real cultural shift as a result of the individual responsibility and accountability imposed by the regime.
"While we are waiting for the detail of how exactly the SMCR will apply to asset management firms, the FCA's direction of travel is clear and it is very likely that a similar, potentially seismic, cultural shift lies ahead for the asset management industry."
