Speaking to advisers at Nucleus’s annual conference, Ferguson said neither advisers nor their clients gain from their supposedly advantageous collective buying power, while retail funds also cost about four times as much as the institutional equivalent.
The regulator’s review, Asset Management Market Study – Interim Report, published in November 2016, criticised weak price competition among asset managers and attacked actively managed funds for failing to outperform their benchmark once fees were taken in account.
Ferguson said: “We’ve been asking why asset allocation is the primary driver of returns but fund management costs many time more, or why not one single multi-asset fund has outperformed its equivalent Vanguard Life Strategies over multiple timeframes.
“In 2014, we said the asset management sector was oversupplied, overpriced, underperforming and under attack from all sides. We said the regulatory examination of fee transparency and commercial pressure from index funds would help drive a collapse in fees pretty much all across the board.”
Investors not benefiting from savings
In its paper, the FCA flagged how actively managed equity funds have demonstrated “price clustering” between 0.75% and 1% on funds with assets under management (AUM) higher than £100m ($122m, €114.3m).
Fees have remained stagnant for around a decade and are generally not coming down as funds grow in size, it said.
The FCA said this suggested that, “the economies of scale are captured by the fund manager rather than being passed on to investors in these funds”.
