Why fund managers are under fire


Britain’s fund management sector stands accused of lining its own pockets at the expense of customers.
City watchdog the Financial Conduct Authority (FCA) is now calling for drastic changes to the industry, which is worth a whopping £7 trillion, in a bid to offer more protection to savers.
In a move to be led by its CEO Andrew Bailey, the FCA is set to take a hard line stance on the fund management sector after revealing that companies are making massive profits while charging customers unjustifiable fees.
In a 207-page report which is only an interim document, following a 12-month probe into the sector, Mr Bailey said sweeping changes were needed to protect its 22 million customers across the UK.
He said: “We need to ensure that competition in asset management works effectively to minimise the cost of investment. We have to do everything else we can to ease the burden on savers.”
However, the FCA has not gone as far as introducing a fee cap or a pay cap, which was hugely feared by fund managers.
Instead companies have been told they will have to standardise their charges and be much more open so that savers find it easier to shop around for the best deal. Firms must also tighten up what can often be woolly targets, the FCA said.
The watchdog hopes the changes will lead to increased competition as well as saving money for consumers who often face difficulty figuring out how to make the most of their money amid low interest rates.
So far, funds have had high profits as a result of a general reluctance to undercut each other.
Fee campaigner Daniel Godfrey, the former boss of the Investment Association, said the new recommendations “should make the industry more Darwinian and that will be good for customers but bad for firms who end up extinct.”
Martin Gilbert, chief executive of the £300 billion fund manager Aberdeen Asset Management welcomed the recommendations as “constructive,” adding: “I agree there should be greater transparency on costs. If you have full disclosure on costs and performance numbers, the customer can decide which asset manager to choose. The thing about asset managers is, if you do well for your clients you do well for your company.”
The watchdog also took aim at the investment consultancy sector, which it said may have conflicts of interest over the advice it provides to pension schemes over which fund house to use.