With a spotlight cast in search of greater transparency, disclosure, value for money and ultimately better outcomes for investors, the regulator concentrated on a few key areas.
It focused on the “closet tracker” argument that many actively managed funds were failing to deliver outperformance against their benchmark in exchange for their higher fees.
There were also concerns that retail investors in actively managed funds seemed to be worse off than their institutional or retail passive counterparts.
Others focused on the comparative lack of competitive pricing pressures in the active space versus that of passive fund management and whether that was a valid observation.
The FCA is inviting responses by February with a view to publishing a “final” paper in the second quarter.
Focus and urgency
Martin Gilbert, chief executive of Aberdeen Asset Management said he welcomed the report as it brought both a sense of focus and urgency to some key industry issues: transparency, cost, value, and ultimately the rise of confidence and competitiveness in the UK management industry, which is key for “making it more attractive on the global stage by leading the way in best practice.”
Similarly M&G said it was committed to meeting its customers’ needs, and welcomed the drive to greater transparency of costs and value for money.
A spokesperson said: “We are conscious of the need to align additional proposals on communication of fund charges to investors with existing initiatives, including UK asset management industry standards and European legislation which UK asset managers are required to implement.”
Further kneejerk reactions are that, with yet another review of pricing, was the Retail Distribution Review (RDR) with all its costs and administrative red tape really able to bring down the costs of active management?
Mike Barratt, consulting director at the Lang Cat, hit the nail on the head when he pointed to the part of the 208-page report showing the scale of operating margins in asset management.
That states: “economies of scale are captured by the fund manager, rather than being passed onto investors”, which he rightly calls “a damning indictment”.