CFA UK comment on the FCA review into investment management 

Friday 18 November 2016

The Financial Conduct Authority (FCA) has published the interim findings of its asset management market study, which suggests that there is weak price competition in a number of areas of the asset management industry. 

In response to these findings, Will Goodhart, CEO of the CFA Society of the UK (CFA UK), said:

All-in fee
"Fees and charges matter. They have a material impact on investor returns. We have always been clear that investors should be able to see the costs that relate to the management or administration of their assets. These should be comprehensively disclosed. The difficult question that has arisen is whether to show an estimate of trading costs ex ante or the actual figure ex post - and who should bear those costs.

The headlines will suggest that the FCA is recommending a single all-in figure, but actually what they are consulting on is a range of different remedies most of which place the incentive for the management of trading costs with the manager. That move is positive, but there are advantages and disadvantages to each of the four different approaches that are suggested. Rather than regulating a single approach, it might be best here to set a principle and to let consumers decide which approach they prefer. If different managers and different clients prefer different approaches, it might be better to allow them to settle on these, rather than regulating them into a format that will certainly work well for some but not necessarily for all."

Duty of care and fund governance

“We have always known that investment professionals owe a duty of care to their clients. This is implicit in the code and standards that our members sign up to and in the design of the CFA Program. We are pleased that the FCA intends to require his duty more broadly and look forward to working with them on how best to do so.

We welcome the FCA's interest in strengthening the duty of care that investment professionals have for their clients and to strengthen fund governance. Investment managers owe their duty of loyalty to the investors in the fund: their clients. The interests of those clients must always come first, and the competing interests of the firm or other entities should always be secondary to serving the client.

It's evident, however, that the FCA is not yet clear about how best to proceed on governance as it lists six alternative approaches that might be followed. Our view is that a good investment fund board is characterised by independence, transparency, and a focus on the primacy of client interests and that a board should be composed of a majority of independent board members acting independently from the management of the fund.”