CFA Institute and its local member societies (of which CFA UK is currently the largest worldwide) share a belief that investment managers have a duty to act in clients’ best interests.
As CFA Institute’s President and CEO, Paul Smith, CFA, noted early last year, ‘investment managers have a duty to act as stewards of investors’ assets, in an environment that nurtures a culture of more ethical behaviour and promotes market integrity. If our industry is to recapture the trust of our investor base, we need to work hard to prove that we truly mean it when we say that we put their interests first. The investment management industry, its participants, and, most importantly, society at large will only prosper under these circumstances.’
The FCA’s interim report on its asset management market study demonstrates the FCA’s commitment to meeting its strategic objectives to protect consumers and to promote competition. We support those objectives and welcome the opportunity to consider ways to achieve these ends.
In our response to the report, we note the weakness of some of the evidence on which the FCA’s findings are based and do not find that the report provides strong evidence of a failure of price competition. However, we agree that:
- Price competition does not always work well across the market
- Transparency of charges and clarity of objectives could be improved
- Investor and adviser behaviour could be improved
- It should be easier to switch between funds
- The investment consulting market is relatively concentrated
- Investment consultants may be conflicted when offering fiduciary management services with respect to pricing structures.
We share the FCA’s opinion that ‘there is room for improved outcomes in both the institutional and retail parts of the market’.
With regard to the FCA’s recommendations, we:
- Reject the FCA’s stated rationale for the introduction of an all-in fee
- Believe that it would be more productive to improve fund governance than to introduce a new duty of care
- Agree that disclosures could be improved so that investors have a better idea at the outset about a fund’s purpose, objectives (both relative and absolute), its level of risk and its capacity
- Are concerned about requiring much stricter regulation of benchmark selection and recommend instead regulatory guidance on best practice in benchmark selection, management and application
- Are interested in the possibility of triangulating across various measures to provide some broad indication of funds that are or are not achieving their intended outcome and we believe this approach is gaining traction within the industry and would benefit from a broader debate.
- Believe that it should be easier for investors to switch out of funds and for investment managers to close funds
- Believe that it would be helpful to review the requirements around trustee knowledge and also suggest that further research should be conducted into the relationship between scheme governance and outcomes
- Note members’ concerns that the increasing burden of regulation is acting as a barrier to competition and intend to undertake further research in this area.
Read CFA UK's response to the FCA’s interim report.