On June 28, 2017 the Financial Conduct Authority (FCA) published its final report MS15/2.3 into the asset management sector. This follows on from its interim report, MS15/2.2, published in November 2016.
The interim report found evidence to suggest that there was weak price competition in a number of areas of the asset management industry and in that interim report the FCA set out its provisional views on the way in which competition works for asset management services, the resulting outcomes for investors and its proposed remedies to address concerns which it identified. The interim report prompted feedback and the FCA undertook further work to reach a final set of findings (Part A MS15/2.3).
The final report maintains that price competition is weak in a number of areas of the industry. Despite a large number of firms operating in the market, the FCA found evidence of sustained, high profits over a number of years. It is apparent that investors are not always clear what the objectives of funds are, and fund performance is not always reported against an appropriate benchmark. The FCA also identified concerns about the way the investment consultant market operates.
Package of remedies
In Part B of the final report, the FCA has published a series of remedies to increase competition in the asset management market and to protect those least able to actively engage with their asset manager. The package of remedies is designed to bring together a consistent and coherent framework of interventions, enable investors to exert greater competitive pressure on asset managers and increase the transparency of costs. Finally, the package seeks to improve the effectiveness of intermediaries for both retail and institutional investors.
The FCA has published a separate consultation paper, CP17/18, ‘Consultation implementing asset management market study remedies and changes to Handbook’. This sets out the FCA’s proposals in relation to fund governance, risk-free box profits and share class switching.
(FCA, Asset Management Market Study, 28.06.17)