Investment firm Henderson has been fined £1.9 million for failing to treat fairly more than 4,500 retail investors in two of its funds.
The fine by the Financial Conduct Authority relates to the Henderson Japan Enhanced Equity and Henderson North American Enhanced Equity funds.
The regulator says that in November 2011, Henderson’s appointed investment manager decided to reduce the level of active management within the funds. The FCA says that the way it treated retail investors in this matter was very different to how institutional or professional investors in the same funds were treated.
Henderson offered to run the funds without charge for the institutional investors who would be affected by the change. But the company failed to communicate the change in strategy to retail investors – it did not contact them directly or update the funds’ prospectus.
Retail investors were unknowingly charged the same level of fees for almost five years after the decision was made to change the investment strategy. This is despite the fact that they were not receiving the same level of active management service.
Mark Steward, executive direct of enforcement and market oversight at the FCA, said: “The FCA requires all firms to treat all its customers fairly, not just some customers. In this case, retail investors paid fees for active investment management they did not receive.”
Closet Trackers
The FCA says the funds were effectively operating as “closet trackers”, simply replicating the stock market but charging investors a fee for which they would expect a manager to be actively running the fund and taking stock decisions.
Steward said the fees charges were “inappropriate given the diminished level of active management”. He added: “The matter is aggravated by the length of time Henderson took to identify the harm being caused to the retail investors and to fix it.”
The regulator calculated that investors were charged £1.78 million more than if they have invested in an equivalent passive fund. Some 4,713 direct retail investors were affected. Henderson, which merged with Janus to become Janus Henderson 2017, has now communicated with customers and compensated them for the extra costs they incurred. The FCA reduced its £2.66 million fine by 30% as Henderson agreed to resolve the matter.
The names of the funds have since been changes to Henderson Institutional Japan Index Opportunities and Henderson North American Index Opportunities, reflecting the lack of active management on the funds.
The Japan fund has a two-star rating from Morningstar and its fees are still relatively high for a passive fund at 0.7%. It has produced annualised returns of 10.5% over five years. The North America fund has a three-star Morningstar rating and ongoing charge of 0.69%. It has produced annualised returns of 13.6% over five years.
A Janus Henderson spokesman said: "Janus Henderson accepts the FCA's findings and the financial penalty, and has co-operated fully through the process. Affected clients had already been separately contacted and fully compensated. Since the incident, Janus Henderson Group has improved its systems and controls."
The firm pointed out that the events took place between 2011 and 2016, prior to the Janus Henderson merger.
