The UK regulator’s proposals for the asset management industry are “raising the bar for fiduciary standards”, according to the former chief executive of the industry’s trade association.
Daniel Godfrey, who left the Investment Association (IA) last year, told IPE the FCA’s report had made it clear that “treating customers fairly is no longer enough” for asset managers.
“It needs to be that asset managers always act in their clients’ best interests,” he said.
This includes addressing practices that may be strictly within FCA rules but may not be providing the best outcome for investors.
The FCA has proposed placing value-for-money requirements on existing fund boards to scrutinise costs and regularly review investment management agreements.
But Godfrey said existing board members – very few of whom were independent, according to the FCA’s report – already had a wide range of responsibilities and might not have time to focus on the new rules.
Instead, he recommended the creation of a single independent board within each asset manager with responsibility for fund governance.
The regulator has also laid out four options for an “all-in fee” to incorporate all investment fund costs incurred by consumers.
Godfrey highlighted the second option listed in the report, which would mean all costs within an asset manager’s control are laid out within the ongoing charges figure, with estimates for variable costs such as transaction costs.
“This will make it much easier for consumers to compare – to get a much clearer sense of what a fund is trying to do and how much you’re going to pay,” he said. “You can then measure after the event whether you have got the value for money you were promised.
“The asset management industry has always said it is different from banks and insurers because it is an agency business. The agent is the service you’re paying to act as your champion. There is no reason why it can’t make a profit from that role, but, once you’ve agreed a fee, you should stick to that.”
During his tenure at the IA, Godfrey attempted to introduce a standardised template for illustrating costs clearly to investors – in part as a result of pressure from campaign groups.
He left the IA after several member firms threatened to abandon it over disagreements regarding a renewed Statement of Principles.
The FCA subsequently hired Godfrey on a short-term contract to feed in to its asset management review.
Godfrey declined to comment on his input into the FCA’s review but made clear his support for its main proposals.
“If a fund’s objectives are woolly, and it’s hard to get a handle on costs, it’s difficult for the investor,” Godfrey said.
“If we can change this, it will make the industry more Darwinian. Then it becomes stronger, with better outcomes for consumers – and it also grows.”
Regarding the regulator’s assessment that price competition among active managers was “weak”, Godfrey said: “What’s being challenged is the model of trying to beat the benchmark by 1-2% gross of fees. I don’t think it’s a death knell for active management but a chance to reinvigorate itself and become a force for better returns and better social and economic outcomes.”
Since leaving the IA, Godfrey has taken up non-executive positions at Big Issue Invest and fintech start-up Digital Moneybox.
In October, he co-founded The People’s Trust, a crowd-funded investment trust.