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FCA releases asset management market report

16 August 2017 | Topical insights

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Commentary by Richard Withers, head of government relations for Vanguard in Europe.

The Financial Conduct Authority (FCA) published its final findings from its asset management market study in June. In conducting this study, the FCA sought to discover how asset managers compete to deliver value both to retail and institutional investors.

The study's interim findings, released in November of last year, contained a number of criticisms of the industry. As we said at the time, Vanguard agreed with many of the findings, particularly on the importance of costs, the difficulty high-cost funds face in outperforming after costs are taken into account and the value of clear communication to investors. In fact, we even went as far as suggesting that all funds should carry a 'health warning' letting potential investors know that high fees will harm their long-term returns.

Some observers have argued that the final findings lack the punchy headlines many asset managers were expecting (and some were fearing). While our wished-for health warning may not have been imposed by the FCA, its final findings are clearly in line with the interim findings, and we would caution against underestimating the FCA's commitment to improving the investing landscape for both retail and institutional investors.

The report emphasises the importance of costs, with the FCA intent on strengthening the obligation of fund managers to act in the best interests of investors. There is also an understandable belief on the part of the FCA that more should be done to ensure consumers are invested in the cheapest available share class and that economies of scale experienced by asset managers benefit fund investors. Transparency and clarity of communication are key themes in the report, with the FCA finding that information on both charges and on past performance is not as clear to investors as it should be.

While the FCA believes that recent and forthcoming regulatory changes such as MiFID II, PRIIPs and others will partly address their concerns, they have also made a series of further recommendations to improve competition between asset managers and protect investors.

What does this mean for the asset management industry? It's clear to us that the FCA is serious about these issues and we think the industry should expect to hear more from it. We agree with much of what the report says, and we look forward to continuing to engage with the regulator, our peers and our clients on this important topic.

Lessons for advisers?

Reassuringly, the FCA recognises the valuable role that advisers can play in protecting investors from some of the failings identified. Advisers can help consumers better achieve their financial goals by identifying funds that have strong performance and offer value for money, while also encouraging their clients to adapt a patient long-term approach to investing.

At the same time, it's also clear that the FCA has some general concerns about whether consumer-facing businesses are sufficiently improving outcomes for investors, as evidenced by their recent announcement of a market study into investment platforms. In light of this, advisers and other industry practitioners should continue to heed the FCA's focus on competition, costs, performance and transparency.

Richard WithersRichard Withers
Head of government relations, Vanguard Europe

Important information:

This article is directed at professional investors and should not be distributed to, or relied upon by, retail investors.

It is designed for use by, and is directed only at, persons resident in the UK.

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority.

VAM-2017-08-03-5015

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