The FCA has just completed their market review of the asset management industry. Asset managers in the UK are responsible for more than £6 trillion of invested assets including the pensions and investments of UK individuals and companies.
Whilst acknowledging the importance of the industry to the economy and to investors, the report had a number of concerns. Here they are in summary:
- Weak price competition in a number of areas – the report found that asset manager’s fees were often spookily similar to the fees of other managers in the same sector. It also found little evidence that asset managers of big funds were using their size advantage to become more competitive on fees.
- No clear relationship between charges and the gross performance of retail active funds in the UK – Put simply, fund managers who try to pick the best stocks often vary widely in how much they charge. The FCA found that paying more in fees did not make it more likely that you would perform better. In fact more expensive funds were, if anything, slightly poorer performers on average. Similar studies in the US have found the same
- Worse performing funds were more likely to be closed or merged – Funds that were performing badly were often closed or merged. The report found that the performance of merged funds usually improved whereas closed funds were often among the poorest performers. One tip is to pay attention when funds become closed to new contributions as this can be a sign that performance is about to worsen.
- Concerns about how asset managers communicate their objectives – Asset managers often fail to make it clear to investors what exactly the aims of their fund are. The language they use is often vague or overly technical.
- Investors’ awareness and focus on charges is mixed and often poor – How much is my fund charging? Is it delivering performance to justify the charges? What other funds should I be comparing it to? With thousands of available fund options it is no wonder that consumers struggle to pick their way through the charges minefield.
- We have identified concerns in the investment consulting market – Big institutional investors, like large company pension schemes for example, often use investment consultants to manage their assets. The FCA found that just 3 companies dominated this market and that this has led to low switching levels and conflicts of interest.
- Retail investors do not appear to benefit from economies of scale when pooling their money together – The savings associated with large investment volumes should be passed on to the investors and not just pocketed as profit by the asset manager.
The FCA has introduced a package of remedies for these problems which will be implemented over the coming months.
What the report does underline is the importance of choosing your asset manager well and keeping a close eye on performance and charges at regular intervals.
We understand how important choosing a good asset management strategy is to good financial planning. That is why we keep a constant expert eye on the investment options available to our clients and are ready to recommend changes whenever necessary. We currently have a panel of portfolio options that have passed our rigorous screening process, these include both low cost options and active managers that aim to deliver outperformance over time. Speak to us about how we can tailor a solution to suit your investment needs.