The Financial Conduct Authority (FCA) has acknowledged significant strides made by many firms in enhancing value for investors but also pinpoints specific areas that require further refinement, highlighting the ongoing journey towards improved value assessment practices in the fund management industry.
The FCA’s analysis stems from its 2017 Asset Management Market Study, which emphasised the need for increased demand-side pressure on fund prices to ensure competitive outcomes for authorised fund investors.
The FCA says that since then it has collaborated closely with the industry to drive a greater focus on value assessment, aiming to achieve better value for money for investors.
Positive examples of practices were noted in the review, including the transfer of investors to cleaner share classes and the lowering of fund fees. However, according to the review, independent non-executive directors at some companies appeared to be less rigorous in their examination and frequently took material at face value without conducting further research.
Additionally, in the Asset Management Firms’ (AFMs) evaluation of the performance of the funds, a significant difference between strong and weak practices was found. Some businesses appeared to rely on current market rates to support their prices, omitting to do a thorough analysis and taking into account a wider variety of relevant elements.
Furthermore, AFM Costs and Economies of Scale were sometimes not fully incorporated into the final conclusions of some firms, despite advances being reported in their cost allocation procedures.
The FCA anticipates that businesses will take note of these conclusions, implement corrective action if necessary, and align their operations with legal requirements.
FCA director of wholesale buy-side Camille Blackburn says: “Authorised fund manager boards and senior managers are responsible for ensuring value assessments are carried out properly and any issues found are resolved quickly.
“It is vital that firms make sure they are not solely focused on a fund’s profitability over value for money for investors. The Consumer Duty, which is now in place, further supports our expectations in this area.”
