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The world’s largest sovereign wealth fund just made its largest return ever. But the probability of extreme market events has “arguably risen”, and it’s carrying out stress tests for a more uncertain future.
UK fund managers, consultants roughed up by regulator
The UK financial regulator has gone to town on the country’s funds management industry calling for a raft of measures to reduce fees, improve disclosure and increase competition.
In a wide-sweeping report released last week, the Financial Conduct Authority (FCA) recommends stronger investor best interest requirements for fund managers as well as introducing an “all-in fee” disclosure standard.
“… we propose a package of remedies to boost competitive pressure for both retail and institutional investors and ensure a minimum level of protection for investors,” the interim FCA ‘Asset Management Market Study’ says. “This should also increase the efficiency of the asset management industry and its attractiveness to international and domestic investors.”
Investment consultants also copped a serve from the FCA with a side-bar study outlining plans to bring the highly-concentrated asset advisory business under its regulatory ambit and refer the industry to the UK Competition and Markets Authority (CMA).
According to the FCA report, the UK investment consultancy industry suffers from weak demand-side scrutiny, murky performance measures, conflicts of interest and lack of competition.
The FCA says just three providers – Aon Hewitt, Mercer and Willis Towers Watson – have dominated the UK asset consultancy industry for some time, accounting for about 60 per cent of the market.
Furthermore, the UK regulator found asset consultants were prone to recommending associated implemented solutions.
“One survey found that 58% of schemes currently select the fiduciary arm of their existing investment consultant or actuary as their fiduciary management provider,” the FCA investment consultant report says. “Moreover 75% of new mandates were awarded without a fully competitive tender in 2014, with investment consultants continuing to provide the majority of mandates.”
In its main report on the UK funds industry, the FCA says most active management fees have remained at high levels (average 0.9 per cent) while passive fees (average 0.15 per cent) have fallen in recent years. However, active managers in general do have not outperformed passive funds after fees, the report says.
“We also note that as fund size increases, price does not fall, suggesting the economies of scale are captured by the fund manager rather than being passed onto investors in these funds,” the FCA says.
In general, the UK asset management industry has sustained high profits, generating average margins of 36 per cent over the six-year sample period reviewed by the regulator.
“These margins are even higher if the profit sharing element of staff remuneration is included,” the FCA says.
The report says about 1,840 UK funds managers collectively look after some £6.9 trillion of assets split between retail (£1 trillion), institutional (£3 trillion) and offshore investors (£2.7 trillion).
Both the main fund management proposals and investment consultancy CMA referral would be open for consultation until February 20 next year.
“We also propose further FCA work on the retail distribution of funds, particularly on the impact that financial advisers and platforms have on value for money,” the regulatory report says.
– David Chaplin, Investment News NZ
