FCA demands 'all-in' charge in active management crackdown

By Sam Shaw

Added 18th November 2016

The FCA has criticised the “weak price competition” among asset managers, attacking actively managed funds for failing to outperform their benchmark once fees have been taken into account.

FCA demands 'all-in' charge in active management crackdown

In its paper released this morning, Asset Management Market Study – Interim Report, the FCA flags how actively managed equity funds have demonstrated “price clustering” between 0.75% and 1% on funds with assets under management (AUM) higher than £100m ($124m, €116m).

Fees have remained stagnant for around a decade and are generally not coming down as funds grow in size.

The FCA said this [suggests], “the economies of scale are captured by the fund manager rather than being passed onto investors in these funds”.

Conversely, the regulator said that charges for passive funds have fallen over the past five years, which suggested price awareness and competitive forces are building in this particular space.

The annual average disclosed fee for actively managed equity funds, available to UK investors, is 0.90% of AUM, compared to 0.15% for the average passive fee.

The FCA said the lack of competitive pricing was having a material impact on investment returns.

Following analysis of the relationship between price, performance and how actively the fund is managed, the FCA said: “Overall, our evidence suggests that actively managed investments do not outperform their benchmark after costs.

“Funds which are available to retail investors underperform their benchmarks after costs – while products available to pension schemes and other institutional investors achieve returns that are not significantly above the benchmark.”

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