The extent to which investment consultants impact competition for institutional asset management services will be subject to review by an FCA market study.
The market study will also examine whether asset managers are motivated and able to control costs along the value chain.
The regulator will also look at whether there are any barriers to innovation and technological advances in the UK’s £6.6 trillion asset management industry.
The FCA will consider both retail and institutional investors in the study and will publish interim findings in summer 2016 and a final report by the early 2017. Interim findings will indicate areas of concern.
The FCA announced its intention to undertake a market study into asset management in its 2015/16 business plan following feedback to its wholesale sector competition review in 2014 that flagged up concerns of potential conflicts of interest in investment consultants providing advice and asset management services, as well as issues over getting value for money and in monitoring the performance of asset managers.
UK asset managers oversee around £2.1 trillion of pension fund investments, £1.2 trillion in retail investment products and £0.4 trillion in public sector and charity investments. There is a further £1 trillion investment in insurance products and £1 trillion invested in non-mainstream asset management products – both of which will include pension fund investments.
From 31 December 2016, manufacturers and distributors of packaged retail and insurance-based investment products (PRIIPs) will be required to provide retail investors with a Key Information Document (‘KID’) under the PRIIPs Regulations.
MIFID II comes into force in the UK on 3 January 2017 and some of its provisions will apply to investment firms in the asset management sector.
FCA director of strategy and competition Christopher Woolard says: “Asset managers provide an important economic function, bringing together those with money to invest and companies and governments that need capital. Given the significant role they play in the economy, it is essential that competition works effectively for these services.
“The UK is a world leader in asset management. Our market study aims to ensure that both retail and institutional investors can get value for money when purchasing these services – which we expect to further strengthen the UK’s position as a major centre for asset management.”
Investment Association interim CEO Guy Sears says: “As the FCA acknowledges, the UK’s investment management industry is one of the most successful in the world. The industry is a critical conduit for savings to flow productively into the economy, and a highly important export sector.
“We agree it is essential the whole investment chain functions effectively for its clients. We welcome the FCA’s decision, alongside its core focus on investment managers, to also consider the role of distributors and investment consultants, reflecting their critical role in delivering the best outcomes for our clients.”
ShareAction CEO Catherine Howarth says: “Asset managers play an important role in serving the needs of institutional investors and the millions of savers whose money they invest. For too long the incentives within the asset management sector have rewarded short-termism, at the expense of meeting savers’ needs for long-term returns. We urge the FCA to identify and tackle the reasons for this.
“When considering “value for money”, savers have an interest not only in financial returns but also in investment decisions that do not jeopardise the world in which they live and into which they will retire. Asset managers should compete, and be held to account on, the impact their decisions have on the environment, society and the wider economy. We hope the FCA will keep this in mind.”
Hargreaves Lansdown senior analyst Laith Khalaf: “The UK retail fund market is home to many talented managers, but there is still a huge sum of money held in dinosaur funds which may well have been top of the food chain in their day, but now look unwieldy and high cost by comparison to more modern offerings.”