After publishing its interim report towards the end of last year, the FCA sought responses from the industry over a number of issues, including the all-in fee.
“We continue to support the disclosure of a single all-in fee to investors and MiFID II will introduce this for investors using intermediaries,” the regulator noted. “This will include the asset management charge and an estimate of transaction charges.”
Under the pan-European Markets in Financial Instruments Directive II (MiFID II), greater disclosure requirements over costs will be brought in at the start of 2018.
MiFID II will compel firms to provide aggregated and ongoing information on all costs that must be shown as a single disclosure, including asset management charges, indirect costs such as transaction costs, and intermediary charges.
The FCA noted: “These changes will give consumers greater understanding of the full costs and charges of the investment products and services that they are buying.”
Where asset managers expressed a preference, most preferred making the ongoing charge figure (OCF) the actual charge and providing an estimated transaction cost.
In the study, the regulator noted that most respondents agreed about greater transparency over charges could help investors compare prices and find out the true cost of investments. However, some respondents warned against investors becoming too focused on charges.
“Several respondents stated that any change to fee structures and disclosures should include a careful education process to ensure investors understand what the charge represents and how to interpret it,” it noted.
Asset managers and other industry participants have reacted differently to the publication of the study, with a lot of support for greater transparency over fees.
Martin Gilbert, chief executive of Aberdeen Asset Management, said he welcomed the FCA study, adding that the recommendations to improve investor protection through better governance and drive competition by greater fee transparency were “constructive and sensible”.
He said: “I have stated several times that I am in favour of all-in fees including all costs as the industry has an obligation to deliver what the customer wants. Incorporating dealing charges for equity funds should be straightforward particularly for those managers, like ourselves, who have low portfolio turnover.
“It is more challenging to calculate all-in-fees for bond funds, but I’m encouraged the industry is already looking at ways of doing this. We need to embrace the concept and commit to finding a solution for the best interests of clients.”
Will Goodhart, chief executive of the CFA Society UK, said it made sense for the regulator to work within the disclosure requirements set out by MiFID II and the Packaged Retail and Insurance-based Investment Products (PRIIPs) regulations.
“These will give investors clearer sight of the likely total costs they will incur and clearer information about the total costs that have been incurred,” he said. “And they will do so in ways that are easy to understand and where the real financial cost is more evident.”
Chris Cummings, chief executive of the Investment Association, added: “Many of the key recommendations work with the grain of European legislation already in the pipeline to introduce more clarity and transparency for consumers.
“We will work closely with the FCA as it looks further into the detail of how to present costs and charges in the clearest way for savers and how it will develop more independent oversight of investment funds in a way that is effective and proportionate.”
Sean Hagerty, managing director for Europe at passive investment manager Vanguard Asset Management, said: “This is an important moment for UK investors. We support the FCA’s efforts to lower the cost and complexity of investing. Consumers always benefit from lower prices, better quality products, and clearer information.
“Costs matter. Every pound that investors pay in charges is a pound out of their potential returns, reducing their chances of being able to afford a comfortable retirement or save for a mortgage deposit.”
Among other remedies for the industry, the regulator proposed to strengthen the duty of fund managers to act in the best interests of investors. It highlighted concerns over how useful investment objectives were to retail investors.
The FCA is also to chair a working group to consider how to make investment objective clearer and whether to require asset managers to be clear on why or why not a benchmark has been used.
Daniel Godfrey (pictured), former chief executive of the Investment Association and founder of The People’s Trust, an investment trust due to be launched later this year, said: “Investment managers will be relieved today. The FCA has delivered a report which spares them the harshest potential remedies flagged in their interim report last November.
“Asset management’s biggest problem isn’t the FCA. It’s the dysfunctional nature of the investment chain that prevents them fulfilling their potential to optimise returns for investors and drive economic growth.”
In a statement by Gina & Alan Miller of SCM Direct expressed disappointment with some of the regulator’s actions arguing that consistent and standardised fee disclosure should already have been mandated.
“Whilst the FCA is finally pursuing a pro-consumer agenda it is disappointing that they still appear to be dragging their feet on some key aspects,” the pair noted.
“The UK investment industry has been ripping off the consumer for decades and it is time for the UK regulator to act now rather than have further consultations with the industry and its shoddy trade bodies.”
They added: “The fact that the FCA feels it has to state there will be an increased ‘duty on fund managers to act in the best interests of investors and use the Senior Managers Regime to bring individual focus and accountability to this’ shows how fundamental the dereliction of duty has been in the asset management industry.”