Fund Fees are Too High says FCA

The fund management industry is not competitive or transparent enough according to the Financial Conduct Authority, and must lower costs to ease the burden on savers

Emma Wall 18 November, 2016 | 10:12AM
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Fund fees must be reduced to help ease the burden on savers and investors, according to the Financial Conduct Authority (FCA). In a report published today, the FCA accuses the asset management industry of "weak price competition in a number of areas", as well as a lack of transparency. 

In today's world of persistently low interest rates, it is vital that we do everything possible to enable people to accumulate and earn a return on their savings which can meet their lifetime needs.  To achieve this, we need to ensure that competition in asset management works effectively to minimise the cost of investment," Andrew Bailey, Chief Executive at the FCA said.

The announcement reveals the regulator's interim findings of its asset management market study and concludes that investors often pay high charges for actively managed funds which are "not justified by higher returns". The report congratulated the passive market however, saying that there was stronger competition within this sector, although it did find some examples of poor value for money. 

The FCA also accused fund managers of not making clear their objectives and choosing to compare performance against an unsuitable benchmark.

New Fund Fee Showing All Costs

The regulator proposed new reforms holding asset manager to account should they fail to deliver value for money to investors. A new "all-in" fee was put forward so that investors can easily determine total costs and make like-for-like comparisons across fund sectors.

The FCA also proposed that it was made easier for investors to move into new clean share classes which levy significantly lower annual fees - half the legacy costs in some cases - and called for increased transparency and standardisation of costs and charges information.

"Low interest rates are necessary for the economy, but we have to do everything else we can to ease the burden on savers," Bailey said. "This is one thing we can do."

Jonathan Miller, director of UK manager research for Morningstar said that in recent years, asset management groups have failed to find a common ground on showing investors the true cost of owning a fund.

"The ongoing charge doesn’t include transaction costs," he explained. "We have been saying for a while now that the regulator might look to step in and they have today. The lack of transparency here is high up on their agenda.

"The change is not going to happen overnight as a consultation will take place based on four proposals. However by looking to have a single charge, which will increase visibility of all charges taken from the fund, we can see this as a step forward."


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Emma Wall  is former Senior International Editor for Morningstar

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