The FCA has conducted a review of fund managers’ value assessments and found that while many firms have improved their practices, some still need enhancements.
This review builds on the FCA’s Asset Management Market Study from 2017, with increased pressure to drive change due to the introduction of Consumer Duty. The 2017 report highlighted weak demand-side pressure on fund prices, leading to uncompetitive outcomes for investors in authorized funds. Since then, the FCA has collaborated closely with the industry to emphasize value assessment and enhance value for money for investors.
The latest review indicates that many firms have effectively integrated value assessment considerations into their product development and fund governance processes. Changes in fees and charges have resulted in substantial savings for consumers, amounting to millions. Nevertheless, some outliers have been identified where further action is necessary.
Key findings from the FCA review include:
– Examples of good practice, such as transitioning investors to clean share classes with no trail commission and reducing funds’ fees.
– Some firms’ independent non-executive directors did not provide adequate challenge, often accepting information presented to Boards without deeper scrutiny.
– There are notable disparities between effective and ineffective practices regarding the assessment of fund performance by authorized fund managers (AFMs).
– Certain firms rely too much on comparable market rates to justify their fees instead of conducting a thorough assessment that considers a comprehensive range of factors.
– While some companies have improved their processes for allocating costs, their conclusions about AFM costs and economies of scale may not adequately reflect the improved information available.
Camille Blackburn, director of wholesale buy-side at the FCA, emphasized the responsibility of authorized fund manager boards and senior managers in ensuring proper value assessments and prompt resolution of any identified issues. She noted the importance of focusing on delivering value for money for investors, rather than solely on a fund’s profitability. The introduction of Consumer Duty further reinforces the FCA’s expectations in this area.
The FCA expects firms to reflect on these findings and implement necessary improvements.