This review follows on from the FCA’s Asset Management Market Study, published in 2017, but there is increased pressure to encourage change because of the introduction of Consumer Duty.

The 2017 report found evidence of weak demand-side pressure on fund prices, resulting in uncompetitive outcomes for investors in authorised funds. The FCA highlights that since the publication of the report, the regulator has worked closely with the industry to place a greater focus on assessment of value and to drive improved value for money for investors.

The FCA also reveals that with the recent review of firms, many have now fully integrated consideration on assessment of value into their product development and fund governance processes. There has also been changes in fees and charges, resulting in savings of costs to consumers amounting to millions of pounds. However, they still found outliers where action is needed.

The FCA review found:

Examples of good practice include moving investors to clean share classes with no trail commission or cutting funds’ fees. Some firms’ independent non-executive directors did not provide sufficient challenge, with some accepting information provided to Boards at face value without probing further. Significant differences between good and poor practice in how AFMs assess their funds’ performance. Firms putting too much emphasis on comparable market rates to justify their fees, rather than conducting an assessment using the full range of value assessment considerations. Some firms now have better processes for allocating costs but are reaching conclusions on AFM Costs and Economies of Scale that do not take into account the information made available by that better process.

Camille Blackburn, director of wholesale buy-side at the FCA, says: “Authorised fund manager boards and senior managers are responsible for ensuring value assessments are carried out properly and any issues found are resolved quickly. It is vital that firms make sure they are not solely focused on a fund’s profitability over value for money for investors. The Consumer Duty, which is now in place, further supports our expectations in this area.”

The FCA expects firms to consider these findings and to make improvements where required.