Investing
Regulator to review fund charges which ‘harm’ consumers
The new-look regulator is to carry out a review of the charges on UK retail funds as it is concerned they may be detrimental to consumers.
In its Business Plan for 2013/14, the Financial Conduct Authority (FCA) noted fees on UK funds have increased over the last decade, while additional ‘hidden’ fees have been attached to funds. It also said overall charging structures have become more complex as performance fees have become more common.
The regulator said there is evidence fee structures exploit consumers’ behavioural bias, a key cause of risk. For example, firms may:
• use complex fee structures that make price
comparisons difficult;
• apply more complex fee structures to retail customers
than institutional clients; and
• downplay the long-term impact of apparently small
increases in annual charges.
The FCA will undertake a project in 2013/14 designed to “highlight the behaviours and practices of asset management firms in relation to charging structures that harm consumers.”
It added initial evidence suggests fund fees are high in the UK compared to comparable markets and charging structures do not promote informed consumer choice.
Meanwhile, the regulator is continuing to probe conflicts of interest within the asset management space. This year it will carry out a second round of visits to firm as a follow up to its ‘Dear CEO’ letter sent in November.
“Confidence in the integrity of asset managers is central to the trust between the industry and its customers,” the FCA said.
“Policies to properly manage conflicts of interest mean customers avoid unnecessary costs and have fair access to all suitable investment opportunities. Properly managing conflicts improves the returns earned by customers and enhances general confidence in the UK asset management industry.”
In its Business Plan, the FCA also said it willstep up its supervision of firms holding client assets through “intrusive” visits.
The watchdog said it is concerned a number of firms have inadequate records and ineffective segregation of client assets, heightening the risk that any departures from the market could prove disorderly.
As such, it will “increase the supervision of firms holding client money and safe custody of assets through more intrusive visits to firms, thematic projects and desk-based reviews”, among other methods.
