The UK’s financial regulator has slammed the asset management industry for failing to clearly disclose a wide range of fees, and set out how it expects the sector to improve or face further investigation.
In a statement this week, the Financial Conduct Authority (FCA) laid out the various ways it had found fund managers to have either misunderstood how to interpret rules around disclosure of fees, or were wilfully disregarding them.
It said a recent review of the sector had shown that, while most asset managers calculated transaction costs in accordance with the relevant rules, it found problems with the way some measured transaction costs and how prominently and clearly they disclosed them.
“This review also found that asset managers generally do not disclose all associated costs and charges and these are therefore not sufficiently clear to the end investor,” the FCA said. “Where full cost disclosures are made, there are inconsistencies between different documents and websites, and customers can therefore find the information difficult to understand.”
The FCA said it could only conclude that asset managers may be communicating with their customers in a manner that is “unfair, unclear or misleading and as such, investors can be confused and misled as to how much they are being charged”.
“Based on our sample, where consumers attempt to undertake research themselves, the information they are currently given does not give a fair and clear account of how much they will pay when they invest in financial products,” the FCA said.
The regulator accepted that there were several different regulations to which companies must adhere, but it found that many were either using the fee calculation tools incorrectly or outsourcing to third parties and failing to check standards were being met.
Asset managers hit back
“We are committed to working with the regulator to ensure that we can move to a solution that ensures we are able to provide customers with reliable, clear and meaningful information”
Chris Cummings, CEO, the Investment Association
Chris Cummings, chief executive of the asset management trade body the Investment Association, defended the sector. He highlighted that the FCA had found “no evidence to support the claims that firms are deliberately not complying with the regulations”.
Cummings said the industry was committed to implementing new regulations that were bringing transparency to the market, alongside the new Cost Transparency Initiative , of which the IA is a founding partner.
“Where problems exist, especially in relation to the methodologies, we are committed to working with the regulator to ensure that we can move to a solution that ensures we are able to provide customers with reliable, clear and meaningful information,” said Cummings.
However, the FCA was clear in its demands for the asset management industry to clean up its act, adding that it could take “further action in this area” including “more detailed investigations into specific firms, individuals or practices”.
It acknowledged there were various new regulations to manage, but they should be addressed in way that would complement each other on fee disclosures, rather than confuse or mislead clients.
“In our view, the costs and charges disclosures for the products in our sample often failed to do this,” it said.