Huw Jones contributed to this article.
According to the watchdog, most fund managers did not execute FCA rules on value assessments between July 2020 and May 2021, according to an examination of 18 fund managers conducted between July 2020 and May 2021.
At least once a year, an assessment is necessary to determine if the fees paid by funds are reasonable.
While some funds did a good job with their assessments, the FCA found that too many of them made assumptions that they couldn’t defend to the regulator.
“Many firms did not examine what the fund should offer given its investment policy, investment strategy, and fees when evaluating a fund’s performance,” the FCA said.
“Firms spent disproportionately more time seeking for reductions in administrative service charges, which cost investors relatively less, than they did looking at the expenses of asset management and distribution, which often cost investors significantly more.”
The Investment Association, which represents asset managers in the United Kingdom, stated that it will continue to assist firms in improving their processes for doing and reporting value assessments.
According to the FCA, several businesses claimed their underperformance relative to a benchmark over a period of years was attributable to the manager’s investment approach, but nonetheless informed investors they were getting good value for money.
The FCA stated that some independent directors on fund governing boards did not give the “strong challenge we expect” and did not appear to have a sufficient understanding of relevant fund laws.
The FCA said it will conduct another examination of firms in the next 12 to 18 months to see how well they responded to Tuesday’s feedback.
“If we find that firms are not fulfilling the criteria we expect to be required to comply with our rules, we will consider further regulatory options.”
The FCA message was strong, according to David Croker, asset management risk and regulation partner at PwC, and will be a “wake-up” call for some fund board members, as firms “just have one more cycle of value assessments to get it right.”
(Huw Jones contributed reporting; Alex Richardson, Philippa Fletcher, and William Maclean edited the piece.)/n
