Today, the FCA published its Asset Management Market Study into the asset management industry. We welcome the FCA’s report and support fully its aims to improve transparency and accountability in the industry.
We support the FCA’s efforts to ensure that the investment consultancy industry operates in the best interests of its clients.
The FCA report will make a decision by September on whether to make a market investigation reference to the Competition and Markets Authority (the CMA) for investment consultancy services. The FCA was not convinced by the undertakings put forward by the largest firms offering both advisory and fiduciary management services, and we support the FCA making further investigations into the inherent conflicts of interest. LCP provides advisory services only and does not provide fiduciary management.
The FCA has stated that it is likely to recommend institutional investment advice comes under the FCA’s regulatory remit. We support this, as whilst most consultancy firms are already regulated, either directly or indirectly by the FCA, we believe this important area should be properly scrutinised.
The FCA has raised concerns that investment consultants’ performance is not being measured, but recognise that there is no simple answer to the measurement of the success or otherwise of a consultant’s advice, as each client has their own specific circumstances, objectives and risk tolerance. We look forward to working with the FCA and other industry participants to improve the information available to investors.
In the main, the final report contains little new on top of the interim recommendations in terms of proposals for the wider asset management industry. However a highly significant proposal is the consultation on the appointment of independent directors to fund boards and in particular a requirement for the fund board to justify differences in fees charged to different sizes of investor. This has potentially huge ramifications for asset managers who charge retail clients fees that are multiples of those levied on large institutional clients. Whilst this is on the face of it good news, it would be disappointing if an unintended outcome was an increase in institutional fees.